Objectives of firms

Question 1

Profit maximisation

Answer 1

MR=MC

Question 2

When Profit maximisation is likely

Answer 2

• PLCs may maximise profit as a way to increase their investments of shareholders dividends to increase share value
• Long-run profitability

Question 3

Why might not companies want to Profit maximise

Answer 3

• Imperfect information
• May not be possible

Question 4

Sales maximisation

Answer 4

AR=AC
Volume of sales not value of sales

Question 5

When is Sales maximisation likely

Answer 5

• To increase market share
• Part of a limit pricing strategy

Question 6

Why might companies not sales maximise

Answer 6

• Have to forego potential supernormal profits in the short-run

Question 7

Revenue maximisation

Answer 7

MR=0

Question 8

When is Revenue maximisation likely

Answer 8

• Managers may receive performance related pay based off of revenue targets
• Firms such as supermarkets selling off perishable fruit and veg at the end of the day.

Question 9

Why might companies no Revenue maximise

Answer 9

• Revenue based awards depends on a measurable success criteria

Question 10

Satisficing

Answer 10

Where managers of a firm ensure that there is enough profit to satisfy shareholders

Question 11

Principle-Agent Problem

Answer 11

Where the directors of the company have personal goals that differ to the shareholders.
As long as directors earn enough profit to satisfy shareholders they can persue their own objectives.

Question 12

Survival

Answer 12

An objective of the firm in order to stay in business in the future.
Behaviour is likely to be risk averse

Question 13

Small firms and profit orientation

Answer 13

more profit orientated
- Entrepreneurial attitudes
- Needs profits to grow
Less profit orientated
- May have survival as the main objective
- Larger range of objective options