Theme 3: Business Objectives Flashcards
1
Q
Profit maximisation
A
Marginal cost = marginal revenue
2
Q
When does profit increase
A
When MR > MC
3
Q
When does profit decease
A
When MC > MR
4
Q
Why do some firms choose to profit maximise?
A
- It provides greater wages and dividends for entrepreneurs.
- Retained profits are a cheap source of finance, which saves paying high interest rates on loans.
- In the short run the interest of the owners or shareholders are most important, since they aim to maximise their gain from the company.
- Some firms might profit maximise in the long run since consumers d not like rapid price changes in the short run, so this will provide a stable price and output.
5
Q
Revenue maximisation
A
MR = 0
6
Q
Sales maximisation
A
AC = AR
7
Q
Why might a firm sales maximise?
A
The firms aims to sell as much of their good and services as possible without making a loss. Amazon did this with kindles as they sold as many as possible to gain market share, so9 they can earn more profits in the long run.
8
Q
Draw a cost revenue diagram and label where
- Profit maximisation
- Sales maximisation
- Revenue maximisation
A
9
Q
What is profit satisficing?
A
When a firm is earning just enough profits to keep its shareholders happy.
