Objectives of Firms Flashcards
Econplusdal (11 cards)
What is the condition for profit maximisation?
Profit maximisation occurs at MC=MR
Why do firms look to profit maximise?
1) Re-investment into R&D
2) To reward shareholders with greater dividends
3) Lower costs and lower prices for consumers
4) Reward for entrepreneurship
Why may a firm not profit maximise?
1) Lack of knowledge of MC & MR
2) To avoid scrutiny from regulators
3) Key stakeholders may be harmed
4) Other objectives may be appropriate
What is profit satisficing?
Sacrificing profit to satisfy as many key stakeholders as possible
Example of business stakeholders?
Shareholders
Managers
Consumers
Workers/ Trade unions
Government
Environmental groups
Where is the revenue maximisation point?
MR=0
Why use revenue maximisation?
1) Greater output and potential economies of scale
2) Could be used to predatory price
3) The ‘Principle Agent Problem’
What is the sales maximisation point?
AC=AR
Why use sales maximisation?
1) Greater economies of scale
2) Limit pricing to limit competition entering market
3) ‘Principle agent problem’
4) Flood the market
What are other objectives for firms?
1) Survival
2) Public sector organisations (P=MC)
3) Corporate social responsibility (CSR)
Where is the allocative efficiency point?
P=MC
