Profit maximisation

Question 1

List the reasons producers may not maximise profit?

Answer 1

Social enterprise - operate commercially reasons but aim to maximise improvements in human/environmental well being
Lack of information
Non-profit/Not-for-profit organisations/charities - aim to raise awareness/money for cause - charity work
Managers may aim to maximise sales/revenue/levels means higher salaries
Alternate business objectives e.g. Build brand loyalty/popularity increase long-term revenue, prioritise customer care

economic assumption that businesses aim to maximise profit - reduce profit and would make more profit if not doing so.

Question 2

Why do firms stay small?

Answer 2

Size of the market - market too small to grow/sustain large companies
Nature of the market - setup costs low little to discourage new firms to enter market as a result fierce competition stops any single firm from growing // niche markets the firm’s very particular needs neglected by larger firms therefore gap in the market for businesses prepared to tailor goods & services to the small customer group - such general small
Lack of finance - like to grow cannot raise finances needed to expand - growth requires investment in new resources e.g. machinery, more labour, equipment. Small seen as too risky can’t convince banks they will be successful and repay finance

Aims of the entrepreneur - happy to stay small, making enough profit to satisfy needs, don’t want responsibility of more workers, expanding operations, borrowing more money //lifestyle businesses other interest need time and flexibility to pursue as a result they stay small / don’t want to grow
Diseconomies of scale - once firm reaches certain size further grows results in diseconomies of scale - expands beyond minimum efficient scale average costs rise - not likely to continue growing as they need to charge more for its output

Question 3

Define external benefits

Answer 3

Positive spillover effects of consumption or production - thing bring benefits to third parties

Question 4

Positive externalities

Answer 4

EDUCATION

Education will clearly benefit those who attend schools, universities and colleges. They are likely to get better jobs, earn more money and enjoy a better quality of life. However, education can also benefit the wider society. This is because if people are well educated they may do highly skilled and socially useful jobs, such as doctors, teachers, pilots, senior administrators or research
scientists. As a result, productivity will be higher and the standard of living for society as a whole will rise. It could also be argued that higher levels of individual education will lower unemployment, improve household mobility and
raise rates of political participation - all of which will benefit the wider society.
HEALTH CARE
Individuals that consume health care will benefit if their own personal health improves. They will feel less pain, can return to work and enjoy life more. However, the consumption of health care by an individual can also benefit third parties. For example, if people are healthier they are able to work more effectively making
contributions to economic output and paying taxes. This will benefit the wider society.
VACCINATIONS
If an individual receives an injection to protect against an infectious disease, he or she benefits directly. This is obviously beneficial to the individual but third parties will also benefit. This is because if more individuals are given
vaccinations to prevent infection, the likeliness of others (who do not get vaccinated) contracting disease is lower. This is because the number of people who might pass on the disease is reduced because they have been vaccinated.