Buisness Objectives Flashcards
(28 cards)
Shareholder objective
Maximise profit
Who influences a firms decisions
Consumers, owners, shareholders, directors, workers
Directors/managers objectively
Maximise sales - increased sales bonus
Maximise revenue - increases company size boosting prestige
Workers objectives
Higher wages, job security, improved working conditions
Consumers objectives
Better customer service and quality, social and environmental causes
Marginal Revenue (MR) and Total Revenue (TR) relationship?
When MR is positive, TR will increase as quantity increases.
When MR is negative, TR will decrease as quantity increases.
Total Revenue (TR)?
Total Revenue = Price x Quantity
Total revenue is total amount of money a firm receives from its sales.
Revenue maximization?
When MR=0
What does a total fixed curve look like
Straight horizontal - doesn’t change with output
Diminishing marginal returns (or the law of diminishing marginal returns)?
In the short run, as more factors are employed, the marginal returns from these factors will eventually decrease!
Explain why the marginal cost (MC) curve goes down and then up
MC decreases because initially workers will specialise, increase productivity and decreasing marginal cost.
MC will then increase because diminishing marginal returns will set in, which will decrease productivity and increase marginal cost.
What is the divorce of ownership and control
As a firm gets bigger, there is a difference between who owns the firm and who controls it eg due to selling shares
principal agent problem
agent (who control the buisness) pursue diff interests than the principal (the owners)
why firms seek to grow (5)
- take advantage of risk-bearing economies of scale to lower the risk of failing
- reach economies of scale
- growth in market share leading to monopoly
- increased profits
- Increased prestige for managers seeing the firm become more influential and powerful.
Why firms stay small (5)
- niche market
- greater danger of losing control due to selling shares
- Government blocking mergers
- not enough money
- Reduce diseconomies of scale
Ways to overcome the principal agent problem(3)
- Performance Related Pay eg a year-end bonus for completeing objectives
- employee share ownership scheme eg john lewis
- long term employment contracts to look out for long term best interests
how can small firms compete with large firms (3)
- niche markets eg handmade products
- avoid diseconomies of scale
- often more flexible to changes in demand
demerger meaning
business sells one or more of the businesses it currently owns resulting in the business turning into a separate company.
4 benefits of a demerger
- reduces diseconomies of scale
- can separate and specialise
- firm can sell one of its divisions and its assets to raise money
- focus on core objctives
what is the short run shut down point
AVC = AR
what is the long run shut down point
ATC= AR
factors affecting the profitability of pepsi (3)
- substitutes
- brand loyalty
- competition
how to you show an increase in variable cost on a graph
shift AC and MC upwards
how do you show an increase in fixed costs on a graph
only AC shifts upwards
