Objectives of firms

Question 1

What are 4 of the main objectives?

Answer 1

Profit Maximisation
Profit Satisficing
Revenue Maximisation
Sales Maxismisation

Question 2

Why would a firm want to profit maximise and how would they do this?

Answer 2

So they can re-invest. EG: RandD. This can lower costs and prices.
So they can pay greater dividends to shareholders
So they can reward entrepreneurship

Firms would operate at MC=MR

Question 3

What are some of the problems with profit maximising?

Answer 3

Firms may not know their MC and MR
Firms want to avoid scrutiny. They dont want to get investigated.
Key stakeholders may be harmed if they go to hard with profit maxing.
Other objectives may be more appropriate

Question 4

What is profit satisficing?

Answer 4

This is where firms sacrifice profit to satisfy as many key stakeholders as possible.

Question 5

What are some stakeholders that may benefit from profit satisficing?

Answer 5

TU/Workers
consumers
government
environmental groups
shareholders

Question 6

Why would a firm want to revenue maximise and where does this occur?

Answer 6

So they can benefit from EoS. This may mean more growth, lower costs, lower prices.
Predatory pricing where firms undercut their rivals in order to drive out competition.
Principle agent problem. Divorce between owners and control may lead to managers using this to bargain for more perks.

Occurs when MR=0

Question 7

Why would a firm want to sales maximise and where does this occur?

Answer 7

So they can benefits from EoS.
So they can limit pricing. This can reduce incentive for firms to enter.
Principle agent problem.
So they can flood the market. More people will recognise the product and build loyalty to it. They can change their objective later on.

Occurs where AC=AR