1.1.2 business objectives Flashcards
(13 cards)
What are some different business objectives? [10]
- Profit maximisation
- Sales maximisation
- Satisficing
- Survival
- Market share
- Cost efficiency
- Return on investment (ROI)
- Employee welfare
- Customer satisfaction
- Social objectives
What is the formula for profit?
Total Revenue - Total Costs
When do firms break even?
When Total Revenue = Total Costs
When does a firm profit maximise?
When they are operating at the price and output which derives the greatest profit. In other words, each extra unit produced gives no extra loss or no extra revenue.
Occurs when Marginal Cost = Marginal Revenue
Why may some firms choose to profit maximise? [4]
- Provides greater wages and dividends for entrepreneurs
- Retained profits are a cheap source of finance, which saves paying high interest rates on loans
- In short run, interests of the owners and shareholders are most important since they aim to maximise their gain from the company
- Some might profit maximise in the long run since consumers do not like rapid price changes in the short run, so this will provide a stable price and output
Why are PLCs particularly keen to profit maximise?
Because they could lost their shareholders if they do not receive a high dividend.
What is sales maximisation?
When a firm aims to sell as much of their goods as possible without making a loss.
When Average Costs = Average Revenue
What is satisficing?
A firm is profit satisficing when it is earning just enough profits to keep its shareholders happy.
Why might firms have an objective of cost efficiency?
The more cost efficient a firm is, the lower its average costs. This gives them a competitive advantage as they can afford to charge lower prices.
What is ROI?
Entrepreneurs take risks by making investments, the reward for these risks is profit, which is their return on their investment.
What is an example of a business who are renowned for their employee perks?
Google, who have on site physicians and travel insurance for their employees.
Why might a firm have employee welfare as an objective?
When employees are happy, they are more likely to be productive and do a good job. Also increase loyalty towards the employer, so the employee is less likely to leave.
What does CSR stand for?
Corporate Social Responsibility.
