Firms Objectives

Firms objectives in transport economics 

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  • Firms Objectives
    • Profit Maximisation
      • When marginal cost is equal to marginal revenue
      • Increased profit can be made by expanding output
      • When firms don't operate at the Profit Maximisation level of output...
        • Large profits might attract attention from government watchdogs, damages employee relations and increase competition
    • Sales Revenue Maximisation
      • An objective where a firm produces where marginal revenue is zero  - predatory pricing
      • Short term way of driving out rivals  - long term unsustainable
      • Feature of growing markets
      • Profits can still be earned if total revenue is greater than total costs
      • Bus market
    • Profit Satisficing
      • Where a firm makes a reasonable level of profit that satisfies its stakeholders without maximising profit
      • Could be because of the risks involved with profit maximisation
      • Able to keep employees, customers and stakeholders happy - lower prices, higher wages
    • Sales Maximisation
      • An objective that involves the maximisation of the volume of sales
      • Justified when there is cross-subsidisation
        • A business practice where revenue from profitable activites is used to support loss-making ones
      • Increase output where total revenue just covers total cost - highly inefficient
      • Common with state-owned firms


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