Theme 3 Flashcards
1
Q
Major Business Objectives
A
- profit maximisation
- Satisficing
- Sales Volume Maximisation
- Revenue Maximisation
2
Q
Profit Maximisation
A
- achieving highest possible profit for risk taker
- dominant goal for private firms
- normal profit = profit that is sufficient enough to keep the entrepreneur supplying their enterprise
- supernormal profit = profit in excess of normal profit
- normal profit occurs when a single entrepreneur just covers opportunity cost and chooses to keep supplying to the market (break even)
3
Q
Define Normal Profit
A
- profit that is sufficient enough to keep the entrepreneur supplying their enterprise
- break even
- only covers opportunity cost and chooses to keep supplying the marker
4
Q
Define Supernormal Profit
A
profit in excess of normal profit
5
Q
Satisficing
A
- business makes enough to keep shareholders happy + investors confident
- sacrifice short term profits for long run profit maximisation
6
Q
Principal-Agent problem
A
- conflict of interest between the business owners + hired managers
- due to different goals / objectives of managers as owners not in full control anymore
7
Q
Sales Volume Maximisation
A
- sell as many products as possible without making a loss
- firm must produce an output where revenue just covers total cost of production
8
Q
Revenue Maximisation
A
- gaining the maximum possible revenue from selling a product
9
Q
Minor Business Objectives
A
- Market Share
- Survival
- Shareholder Value
- Ethical Goals
- Co-operatives
- Customer Service
10
Q
Market Share
A
- increase market share
- significant for firms in markets with few large competitors (oligopolies) where winning market share is less risky + costly than winning new customers
11
Q
Survival
A
- significant for new firms in highly competitive markets
- common during recession / downturn
12
Q
Shareholder Value
A
- Increasing shareholder value = increasing business value
- shareholder value = remaining value of business after all debts are paid
13
Q
Ethical Goals
A
- less carbon emissions
- more sustainable etc
14
Q
Co-operatives
A
- maximise welfare for all stakeholders especially workers
- e.g John Lewis or Co-operative group
15
Q
Customer Service
A
- firms focus on ensuring customer is 100% satisfied despite losses or higher costs
- mainly public sector firms
