3.2.1 Business Objectives Flashcards
(25 cards)
Who are the business stakeholders?
Owner and shareholders
Directors and managers
Consumers
Workers
The state
Pressure groups
What is profit maximisation?
When difference between total revenue and total cost is greatest
Where does profit maximisation occur on the graph?
Where marginal costs are equal to marginal revenue
How does the Neo-Keynesian or Neo-Classical view of profit maximisation?
Neo-classical economists believe firms maximise short-run profits
Neo-Keynesian believe firms maximise long-run profits
Why does the Neo-classical view of profit maximisation displease consumers?
The adjustment of prices and output lead to consumer dislike, which can damage a firm’s position in a market
What are the reasons for profit maximisation?
Reinvestment, encouraging growth
Increased dividends for shareholders
Entrepreneurs are rewarded
Increased employee pay and satisfaction
Increased efficiency
What are the issues with profit maximisation?
Increased prices for greater revenue
Neglect environmental/social/ethical issues
High profits increase scrutiny from authorities
Cut workers’ wages reduces standard of living
Higher competition from new entrants
What is profit satisficing?
Making sufficient profit to satisfy the demands of owners, such as shareholders
Why may firms sacrifice profits as part of profit satisficing?
Pass on lower prices to consumers
Higher salaries to satisfy trade unions
Reducing carbon footprints to satisfy environmental groups
Where is profit satisficing on the diagram?
Anywhere between profit maximisation and breakeven
Where is revenue maximisation on the diagram?
Where marginal revenue = 0
What is revenue maximisation?
When total revenue is at its highest
How does revenue maximisation show differences in control and benefit?
Owners want to maximise profit whereas managers want with revenue
Higher revenue gives higher pay to senior managers
What are the reasons for revenue maximising?
Greater economies of scale
Greater salaries for managers
Lower prices give chance for predatory prices
What are the reasons against revenue maximising?
Predatory pricing is illegal
Lower profits lead to dissatisfaction for shareholders
Resources diverted to unproductive uses like advertising to increase revenues
What is sales maximisation?
Sales maximisation occurs when the volume of sales is the greatest
Where is sales maximisation on the diagram?
Average Revenue = Average Cost
What profits are earns when there is sales maximisation?
Normal profits (profits = 0)
What are the reasons for sales maximising?
Normal profits limits incentives for new entrants
Output is higher, so economies of scale
Greater awareness of good by flooding market
What are the reasons against sales maximising?
Too high quantities cause diseconomies of scale
Legal costs and disputes against anti-competitiveness
No reinvestment as no profits
Where is breakeven on the diagram?
Average Revenue = Average Costs
What do smaller or bigger firms prioritise?
Small firms focus on growth of sales to increase customer base
Larger firms focus on revenue or profit maximisation
How may information gaps limit maximisation?
Lack of accurate information on marginal and average costs and revenues
What are the priorities of state-owned firms?
Range of different economic and political objectives
