LS6 - Buisness Objectives

Question 1

Revenue Maximisation

Answer 1

• produces more output then profit maximising firm so price will need to be lower to sell extra output
• maximised at peak of TR/ or when MR is 0

Question 2

Revenue Maximisation likelihood

Answer 2

• shareholders may be displeased
• firm’s behaviour depends on power of principals (shareholders), if it is sufficient can demand to agents (managers) to max profit or have a min level compromise between profit & revenue max

Question 3

Sales maximisation

Answer 3

• focus on volume of sales instead of max revenue
• means output would be even higher to the point where it makes normal profit, where TR=TC & AC=AR

Question 4

Sales Maximisation likelihood

Answer 4

• the extent to which managers can pursue objective without endangering positions depends on how accountable they are to shareholders
• managers have the advantage that they know more about market conditions and internal functioning of firm compared too shareholders who view the firm remotely

Question 5

managerial utility maximisation

Answer 5

• when firm management & ownership are separated, managers develop their own objectives that maximise their own utility
• derived from increased salaries, fringe benefits (e.g. company cars/expense accounts),
• employing more workers to feel important
• investing in managers favourite projects
• all actions may make profit lower then they would otherwise be

Question 6

Statisficing

Answer 6

• argues a modern firm can’t be looked upon as a single entity with a single maximising objective, it’s composed of many separate firms within the group each with own objective
• so can’t pursue any maximising behaviour, have to compromise
• pursuit of many objectives placed in hierarchy
• satisficing is when firms try to achieve satisfactory rather then optimal results

Question 7

Ethical & environmental concerns: corporate social responsibility

Answer 7

• self-interest behaviour of firms leads to negative consq. for society e.g. pollution
• also most firms engage in ethically unacceptable actions according to consumers e.g low wages
• many firms are recognising that pursuit of self-interest doesn’t need to conflict with environment and ethics
• -ve view of firm held by consumers/workers may lower revenue/profits by lowering sales/productivity
• also may lead to gov regulation to minimise negative consequences on society so firms face incentives to show in corporate social responsibility though socially beneficial activities

Question 8

socially beneficial activities

Answer 8

• avoiding polluting activities
• engaging in environmentally sound practices
• supporting human rights
• art/athletics scholarships
• donations to charities
• many practices due to increased consumer awareness and activism resulting in boycotts of firms