Objectives of Firms

Question 1

what is a firm

Answer 1

organisation that brings together factors of production in order to produce output

Question 2

what is normal profit

Answer 2

the return needed for a firm to stay in the market in the long run

Question 3

when does profit maximisation occur

Answer 3

MC=MR

Question 4

what is maximising sales volume

Answer 4

AR=AC

highest level of sales that a firm can sustain in the long run

Question 5

6 Objectives of firms

Answer 5

Sales revenue maximisation 
Sales volume maximisation 
Growth maximisation 
Utility maximisation 
Corporate social responsibility 
Profit satisficing

Question 6

advantages of sales revenue

Answer 6

faster growth than profit maximisation

larger firms gain easier access to finance

Question 7

advantage of sales volume maximisation

Answer 7

faster growth than sales revenue maximisation

Question 8

advantage growth maximisation

Answer 8

faster growth than sales volume maximisation

Question 9

disadvantage of sales revenue

Answer 9

lower profits than profit maximisation

Question 10

disadvantage of volume maximisation

Answer 10

lower profits than sales revenue maximisation

Question 11

disadvantage of growth maximisation

Answer 11

lower profits than sales volume maximisation - profits will be negative

Question 12

what are principle agent problems

Answer 12

arises from conflict between the objectives of the principals and their agents, who take decisions on their behalf

Question 13

what are principles

Answer 13

business owners

Question 14

what is corporate social responsibility

Answer 14

firm acting to benefit wider society the community

Question 15

what is profit satisficing

Answer 15

managers doing just enough to satisfying shareholders

Question 16

advantages of utility maximisation

Answer 16

trapping of power may be necessary to recruit the most effective and productive employees

Question 17

advantages of CSR

Answer 17

may be popular with workers

happier and productive workers

Question 18

disadvantages of profit satisificing

Answer 18

lower profits than possible

Question 19

disadvantages of utility maximisation

Answer 19

the trappings of power may be expensive

Question 20

disadvantages of CSR

Answer 20

expensive