Please enable JavaScript.
Coggle requires JavaScript to display documents.
3.2.1 BUSINESS OBJECTIVES, image, image, image - Coggle Diagram
3.2.1 BUSINESS OBJECTIVES
PROFIT MAXMISATION MC=MR
-This is when MC = MR
-Neo-classical economists argue that the interest of shareholders is most important and therefore the goal of the firm should be to maximise profit in short run.
-By short run profit maximising firms can raise funds for investment and help them survive a slowdown in the economy.
EXAMPLE
Apple and gsk profit maximise as they need to funds to reinvest into research and development
REVENUE MAXIMISATION MR=0
MR=0
William Baumol suggested that managers are most interested in revenue as this is what their salary depends
on.
-Even when salary is not directly linked to sales revenue they know growth of revenue is good for the business.
-Fall in revenue can show a downward spiral in a business managers earnings, less staff and financial institutions less willing to lend money.
-Firms as a result revenue maximise as long as they can provide some profits for owners.
EXAMPLE
Amazon objective is revenue maximisation in 2015 they made a revenue of 150 billion but profits have been stable
SALES MAXIMISATION AR=AC at highest quantity
AC=AR whilst increasing output as much as possible
-When firms try and sell as many units as possible whilst not making a loss
-Robin Marris suggests that managers put growth of their company above any other objective
SATISFICING
Owners want to profit maximise whilst directors want to pursue own objectives
-Directors do not profit maximise, but make enough profit to make owners content whilst following other objectives
TWO OTHER OBJECTIVES
MANAGERIAL UTILITY MAXIMISATION
Managers act in personal interests.
ALLOCATIVE EFFICIENCY
nationalised firms aim to maximise social welfare
