Alternative Objectives of Firms and How They Grow Flashcards
What are the alternative objectives of firms?
- Profit maximising
- Sales revenue maximisation
- Growth maximisation
- Satisficing
- Satisfying stakeholders
What is meant by profit maximising?
The objective of making as much profit as possible
What is means by sales revenue maximisation?
To achieve as high a total revenue as possible (via advertising and offers)
What is means by growth maximisation?
To increase the size of the firm (output) as much as possible
What is meant by satisficing?
To aim for a satisfactory level of profit rather than the maximum, whilst pursuing other objectives at the same time
What are stakeholders?
People affected by the activities of the firm.
What is external growth?
This is when a business grows by joining together with another business. When two businesses agree to join together this is called a merger.
What are the five types of mergers in which a business can externally grow by?
- Horizontal merger
- Vertical merger
- Forward vertical integration
- Backward vertical integration
- Conglomerate merger
What is meant by horizontal merger?
Where two business at the same stages in the chain of production join together (e.g Thomas Cook taking over Jet2)
What is meant by vertical merger?
Where two businesses at different stages in the chain of production join together (e.g Thomas Cook taking over a fuel company)
What is meant by forward vertical integration?
Where a business buys another business which is at an further forward in the chain of production (e.g popcorn company buys a cinema)
What is meant by backward vertical integration?
Where a business buys another business which is at an earlier stage in the chain of production (e.g Vue buys a film production company)
What is meant by conglomerate merger?
This s a merger between two firms producing unrelated products. (e.g Chelsea FC buy a tobacco company)
Motives may be diversification in order to reduce risks or to enter new markets
