The objectives of firms Flashcards
Who can the decisions of the owner of a firm influence
shareholders, directors and managers, workers and consumers.
Who are shareholders
Shareholders hold shares in a company (means they own some percentage of the company.)
state what shareholders get when a company makes profit
if a company makes big profit, its shareholders will take some percentage of the profit
why do shareholders buy shares
buy shares in a company because they are willing to maximise profit
Define directors and managers and state what they do
the people who run the business day to day.
- They organise workers, manage stock and handle marketing.
What do directors and managers want to do/
want their company to do well but want to take home bonuses
- Bonuses are linked to how many sales a company makes. More sales = bigger bonus
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want to reduce their workload and increase their prestige and reputation.
In a company what do workers care about
care about wages/ salaries, job security and working conditions.
What do consumer scare about
care about customer service, low prices and social causes (like saving the environment and helping the poor).
What do we assume about firms and state what happens in real life
We assume firms want to maximise profit (where MR= MC) BUT in real life, firms decision are influenced by worker, shareholders, director and mangers and owners.
Objectives of a firm: revenue maximisation - state how directors and managers can increase their prestige and power
By increasing market share.
- if you control a larger percentage market share, your firm looks bigger and you are the manager/ director of a bigger, more powerful company = more monopoly power
Objectives of a firm: revenue maximisation - what is market share usually measured by and describe
usually measured by revenue.
- The more revenue you have, the greater your market share = managers/ directors looking to increase their market share will look at maximising their revenue.
Objectives of a firm: revenue maximisation - at what point will revenue maximisation occur at and what does this means (state what this means for the long run aswell)
whereMR = 0
- means there is no more revenue to be gained, revue has been maximised / market share can increase
- in the long run can overpower the market and make greater profits in the long run
Objectives of a firm: define sales maximisation
Sales maximisation is when the firm aims to sell as much of their goods and services as possible without making a loss
Objectives of a firm: what condition does there have to be for sales maximisation to occur at
AR=AC
Objectives of a firm: why would managers and directors try and maximise sales
because their bonuses are linked or how many sales they make.