3.2 - Business Objectives

Question 1

Profit Maximisation

Answer 1

Firms aim to produce the highest profit possible. (MC = MR)

Question 2

Why is profit maximisation not always possible?

Answer 2

In the real world, not all firms know what their optimum output level is.

Question 3

Sales Maximisation

Answer 3

Supplying the largest possible output while still earning normal profit. (AC=AR)

Question 4

Satisficing

Answer 4

A decision making process by which the firm aims for a satisfactory solution.

Question 5

Revenue Maximisation

Answer 5

Firms aim to generate the highest revenue possible. (MR = 0)

Question 6

Price Taker

Answer 6

A firm with no market power, selling at the market price only.

Question 7

Price Maker

Answer 7

A firm with some market power, that can alter prices.

Question 8

Total Revenue

Answer 8

Quantity x Price

Question 9

Average Revenue

Answer 9

Revenue per unit sold.

Question 10

Marginal Revenue

Answer 10

The additional revenue generated from producing an additional unit of output.

Question 11

At what point on a cost/revenue curve is revenue maximisation achieved?

Answer 11

• MR = 0
• No more revenue can be achieved from additional output.

Question 12

At what point on a cost/revenue curve is Sales (growth) maximisation achieved?

Answer 12

• AC = AR
• Because this is the highest output without making a loss