OBJECTIVES OF FIRMS (PROD,COSTS AND REVENUES)

Question 1

Why firms profit maximise

Answer 1

• reinvestment
• dividends for shareholders
• lower costs and lower market prices for consumers
• reward for entrepenuership

Question 2

Why may profit maximisation not be main obj?

Answer 2

• don’t compute MC or MR
• greater scrutiny
• key stakeholders harmed
• other obj more appropriate

Question 3

Greater Scrutiny

Answer 3

• if making very large profits, competition regulators may question whether doing something dodgy
• may come in and investigate.
• suspicious of high prices, avoiding costs

Question 4

Key stakeholders could be harmed

Answer 4

• shareholders and managers benefit
• consumers may suffer from high prices
• workes may suffer from low wages (low costs)
• environmental groups unhappy with methods of production

Question 5

Profit satisficing

Answer 5

when a business sacrifices profit to satisfy as many key stakeholders as possible

-amalgam of satisfy and sacrifice

Question 6

Advantages of profit satisficing

Answer 6

• if environment groups unhappy, attack on social media
• government could investigate (anti the businesses interest)
• trade unions attack

Question 7

Revenue maximisation

Answer 7

• MR = 0

Question 8

Revenue max - economies of scale

Answer 8

• rev max quantity = greater than profit max quantity

- greater growth greater eos lower ac lower prices for consumers

Question 9

Rev max - predatory pricing

Answer 9

when a firm will undercut its rival in order to drive out competitors
- rev max price lower than profit max price

Question 10

Sales maximisation

Answer 10

AC = AR, become as large as possible without making a loss

Question 11

Sales max - limit pricing

Answer 11

• if you price at break even, limits competitors entering the market

Question 12

Sales max - flood the market

Answer 12

• loads of consumers become aware of your product

- develop loyalty, down the line change obj