3.2.1- Business objectives

Question 1

What are examples of business objectives?

Answer 1

-profit max
-revenue max
-sales max
-survival
-non commercial objectives (high quality, environment, ethical)
-personal objectives (satisfaction/status, autonomy of being self employed, maximise rewards)

Question 2

What do neo-classical economists assume that a firms objective is?

Answer 2

To profit maximise as owners are the most important

Question 3

Where is profit max on a graph?

Answer 3

MC = MR

Question 4

What are the benefits of profit maximising?

Answer 4

-maximises returns to shareholders
-provides a cheap internal source of finance for investment
-rainy day savings
-may be able to reduce prices due to low costs
-reward for entrepreneurship

Question 5

What is the evaluation of profit maximising?

Answer 5

-may not know where MC=MR is
-greater scrutiny from regulators if high profits are being made
-may harm key stakeholders
-other objectives may be appropriate

Question 6

Why do firms revenue maximise?

Answer 6

-to improve prestige
-to justify managerial rewards
-principal agent problem
-market power

Question 7

What are some examples of firms who sell perishable goods?

Answer 7

-ticket sellers
-flower sellers
-supermarkets (yellow stickers)

Question 8

Where is rev max on a graph?

Answer 8

MR=0

Question 9

What are the benefits of rev max?

Answer 9

-economies of scale
-predatory pricing
-increase brand loyalty + market share

Question 10

What is bad about predatory pricing?

Answer 10

Illegal

Question 11

Why do firms sales max?

Answer 11

-To maximise growth +market share
-exploit EOS, boosting productive efficiency
-limit pricing

Question 12

How much profit is made when sales maximising?

Answer 12

Only normal profit

Question 13

Where is sales max on a graph?

Answer 13

AC=AR

Question 14

What are the benefits of sales max?

Answer 14

-economies of scale
-limit pricing (barrier to entry)
-brand loyalty +value
-to flood the market to create loyalty
-perishable goods

Question 15

What is profit satisficing?

Answer 15

Due to the principal agent problem, owners and directors have different objectives, so directors earn a certain amount of profit to keep shareholders happy but otherwise maximise other objectives

Question 16

What are the benefits directors want?

Answer 16

Higher salary, bonuses, company car

Question 17

What is the evaluation of profit satisficing?

Answer 17

-satisficing is a scale
-reputational risk of being fired
-loyalty to company
-link between happiness and income
-reduced long run competitiveness

Question 18

What is the link between happiness and income?

Answer 18

After $75000 a year, there is no noticeable increase in happiness