3.2 Business Objectives Flashcards
(18 cards)
What determines a firm’s motives?
Who controls it, including owners, directors, managers, workers, the state, consumers, and pressure groups.
What is the primary goal of profit maximisation?
To maximise owners’ returns in the short run.
Why do firms aim for short-run profit maximisation?
- Generate funds for investment
- Survive economic slowdowns
What condition must be met for a firm to profit maximise?
MC = MR.
What happens if a firm produces less than the profit maximising output?
Producing more will increase profit since MR would be higher than MC.
What is revenue maximisation according to William Baumol?
Managers aim to increase revenue as it is linked to their salary and prestige.
What is the output condition for revenue maximisation?
MR = 0.
Which company is cited as following a revenue maximisation objective?
Amazon.
What does sales maximisation aim to achieve?
Maximise the growth of the company above other objectives.
According to Robin Marris, why do managers focus on sales maximisation?
Their salary may be linked to the size of the company.
What is the output condition for sales maximisation?
AC = AR.
What is a potential downside of sales maximisation and revenue maximisation?
Necessitates a fall in price, which may lower profits.
What is satisficing?
Making enough profit to keep owners happy while following other objectives.
What causes the principal-agent problem?
Different goals between owners and directors.
What factors influence the amount of profit needed for satisficing?
Yearly profit levels and profits made by other firms.
True or False: Firms that aim for revenue maximisation will have higher prices than those that profit maximise.
False.
Fill in the blank: Firms produce at _______ to maximise revenue.
MR = 0.
Fill in the blank: To achieve sales maximisation, firms produce where _______.
AC = AR.
