3.2 business objectives Flashcards
(9 cards)
where does profit maximisation occur?
where marginal cost=marginal revenue
when does profit increase?
MR > MC
when do profits decrease?
MC>MR
why do firms choose to profit maximise?
-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 the shareholders are most important, since they aim to maximise their gains from the company
-some firms profit maximise in the long run, since consumers don’t like rapid price changes in the short run, so this will provide a stable price and output
when is revenue maximisation?
when MR=0, each extra unit sold generates no revenue
what is sales maximisation?
when firms aim to sell as much of their goods and services as possible without making a loss
example of sales maximisation
amazon’s Kindle launch, they sold as many kindles as
possible to gain market share, so they can earn more profits in the long run. It helps keep out and deter competitors
what is satisficing?
earning just enough profits to keep its shareholders happy
when might a firm not be aiming for profit maximisation?
in a recession
