LS6- Business Objectives Flashcards
(11 cards)
1
Q
When does revenue maximisation occur?
A
When MR = 0
2
Q
Why revenue maximise?
A
- EoS
- predatory pricing (undercutting rivalry prices to boost market share)
- divorce of ownership and control, principal-agent problem
- less likely to attract the attention of regulators
3
Q
Why may a firm not revenue maximise?
A
- do not know their MR = 0 level of output
- principal-agent problem
- companies may have short-term need for cash e.g. to fund CSR, new opportunities, or to get out of bankruptcy
4
Q
Where does sales maximisation occur?
A
AC = AR
* where TR only just covers TC, breaks even
5
Q
Why sales maximise
A
- EoS
- limit pricing to disincentivise new firms entering the market
- divorce of ownership and control, PA problem (managerial utility maximisation)
- flooding the market to raise brand awareness and develop brand loyalty
6
Q
What is satisficing?
A
- Firms trying to achieve satisfactory rather than optimal results
- Firm aims for satisfactory level of profit or other objectives, rather than maximising it, often due to constraints like limited information or conflicting objectives
7
Q
Profit satisficing
A
- Sacrificing profit to satisfy as many key stakeholders as possible
8
Q
Where does profit maximisation occur?
A
MC = MR
9
Q
Why might a business choose not to profit maximise?
A
- don’t know their MC = MR (profit maximising level of output)
- greater scrutiny/investigation by regulators
- key stakeholders harmed e.g. overworked employees
10
Q
Incentives for firms to pursue corporate social responsibility
A
- socially irresponsible firms = negative image of firms held by workers and consumers -> fall in firms revenues/profits and lowered worker productivity
11
Q
Examples of corporate social responsibility
A
- avoidance of polluting activities
- support for human rights
- arts and athletics sponsorships
- donations to charities
