1.1.2 Business objectives Flashcards
What are main business objectives
Profit maximisation, sales maximisation and profit saticfising.
Others include survival, employee welfare, customer satisfication, cost efficiency, ROI, market share, social objectives
Explain business objective of profit maximisation
Profit maximisation occurs when MC=MR and is the biggest difference between TR and TC and is the reward for the risks taken by entrepeuners. For every additional unit produced, there is no increase in cost or revenue for the busniess. Also will meet objective of keeping shareholders happy as value of shares rises when profits increasing cuasing for higher returns in the form of dividends.
Explain customer satisfaction
Businesses want to keep customers highly satisfied by providing their wants in order to create consumer loyalty and seek high levels of demand in the long run. They may do this by offering higher quality goods to consumers increasing their satisfication as well as increasing the busniesses competivity in the market.
Explain ROI
Busineses want ROI as it allows them to see which particular investments perhaps on capital are profitable and by knowing what investments are profitable it means firms can rationally decide on long term future investments to increase profits.
Explain market share
The increase in market share means the higher the volume in sales produced by one firm within a market. As a result if firms have high sales, they have higher market share and can survive in markets easier. Although the opportunity cost in the short run may be the business experiencing a loss.
Explain sales maximisation
Sales maximisation occurs when average costs = average revenue and this is when volume of output is maximised by the business and theyre producing a high number of sales. This often leads to a loss in the short run however businesses see benefits in the long run.
Explain profit saticfising
Where businesses are satisfied with a level of profits and do not wish for them to be maximised, as long as profits are made. Often leads to principal agent problem between agents and shareholders where shareholders wish for profits to be maximised for increased dividends but agents do not causing conflict. Hence agents try to have a level of profits which staisfy shareholders.
Explain employee welfare
Some businesses will want to keep employees welfare very high and prioritse this as high employee welfare means workers ar emore happy and less likely to want to leave the job and also cause for higher productivity levels which in return benefits the business and this makes them more cost efficient by reducing its avergae costs. Businiess will experience less labour turnover.
Explain social objectives
Businesses will have coorporate social objectives where they look to increase social welfare through performing more ethically such as reducing any environmental harm by taking responsibility in its production process. Although likely to cause for cists to increase so opportunity cost of achieving higher social welfare and social objectives is profit maximisation
