3.2 - Objectives of firms Flashcards
1
Q
What is the main objective of firms?
A
Profit maximisation - so firms will produce the level of output at which profit is maximised
2
Q
What is the profit formula?
A
Profit = TR -TC
3
Q
Why do firms wish to maximise profits?
A
- Re-invest funds into developing new products that lead them to gain more customers
- Pay out higher returns to shareholders which may encourage more people to buy shares in the company, or help boost the share price
4
Q
If MR is greater than MC, firms should…
If MC is greater than MR, firms should…
This will enable them to…
A
If MR is greater than MC, firms should… increase production
If MC is greater than MR, firms should… decrease production
This will enable them to… maximise profits
5
Q
When does profit maximisation occur?
A
When MC = MR
6
Q
When does revenue maximisation occur?
A
When MR = 0
7
Q
When does sales maximisation occur?
A
AC = AR
