3.2.1- Business objectives

Question 1

why is profit maximization a business objective?

Answer 1

they assume that the interests of owners and shareholders is most important and therefore the goal of firms is to profit maximise.
-in the short-run they can generate funds for investment which is beneficial if they were to face a recession.

Question 2

why is revenue maximization a business objective?

Answer 2

managers are most interested in making revenue.

• salary and revenue is not connected but salary depends on it.
• when there is growth in revenue it will result positive outcome
• when there is a fall in revenue would be negative, This will lead to salaries being reduced.
• Therefore, firms aim to revenue maximize as long as they provide some profit for the owners.

Question 3

How would revenue maximization look on the curve?

Answer 3

They will want to produce where MR=0, if MR is above 0 then producing more would increase revenue- their main goal is not to profit maximize hence producing less.
-they produce at q2p2, whilst profit maximization would produce at q1p1.