Business Objectives Flashcards
What are the 4 possible business objectives?
1) Profit maximisation.
2) Revenue maximisation.
3) Sales maximisation.
4) Satisficing.
What are stakeholders?
Groups that have an interest in the success of a firm.
What are the 6 groups who make up stakeholders?
1) Owners/shareholders.
2) Consumers.
3) Workers.
4) The state/government.
5) Directors/managers.
6) Pressure groups.
What is profit maximisation?
Making as much profit as possible.
How can firms profit maximise in the short-run?
In an attempt to maximise profit in the short-run, firms will adjust price and output in response to changes in market conditions.
How can firms achieve profit maximisation in the long run?
Often sacrificing short-run profits, firms may aim to increase their profits in the long-term by calculating their LRAC and adding a markup, allowing for a constant price, as consumers do not like frequent price changes.
What is the point of profit maximisation on a diagram?
MC = MR
What is the main reason for a firm to prioritise revenue maximisation?
This is usually due to the divorce of ownership from control, with managers aiming to increase their salaries and reputation by maximising revenue.
What is the point of revenue maximisation?
Where MR = 0.
What is sales maximisation?
Where a business achieves the maximum sales possible, whilst still breaking even.
What is the main reason for a firm to prioritise sales maximisation?
Some managers are paid a salary linked to the number of sales achieved. In order to maximise their utility, they will try to sell the maximum number of products.
What is the point of sales maximisation?
AR = AC.
What is satisficing?
Managers operating in a way that makes sufficient profits to satisfy stakeholders, without aiming to maximise profit, revenue, or sales.
What is an example of satisficing?
Managers choosing to make enough profits, so the shareholders do not get concerned.
