Objectives of Firms
- Created by: Deborah
- Created on: 17-02-16 16:51
View mindmap
- Objectives of Firms
- Profit Maximisation
- MC=MR
- MC= the cost of producing one more good
- MR= the revenue from producing one more good
- Profit maximisation will take place over the time period determined by the business owner- usually focuses on long term PM
- MC=MR
- Other Objectives
- May wish to boost prestige within local community or only employ local workers despite lower productivity.
- Austrian School of thought- each individual attempts to maximise their own preferences.
- In theory could be entirely monetary but more likely include living in a pleasant area, time with children etc.
- In other words, individuals will strive to maximise their psychic revenue.
- Profit maximisation actually occurs where: marginal psychic revenue of consumer= marginal psychic cost of the firm
- In other words, individuals will strive to maximise their psychic revenue.
- In theory could be entirely monetary but more likely include living in a pleasant area, time with children etc.
- Satisficing
- Large firms contain many groups all who want to pursue different aims
- Shareholders want an increasing share price
- Management want large bonuses
- Workers want good pay and good working conditions
- Rather than maximising one objective the firm attempts to find an acceptable goal to all
- Large firms contain many groups all who want to pursue different aims
- The Divorce of Ownership and Control
- Large corporations such as PLCs have owners (shareholder) who do not run firm but vote in Board of Directors to run firm day to day.
- PLC floats on stock exchange and so many shareholders are only concerned with share price and nothing else
- The Principle-Agent Problem
- Can exist in any organisation which is not a sole trader- competing of objectives of manager and worker
- Directors are paid bonus if the generate £10m of sales revenue, as such they lower prices to increase sales but would reduce profitability- share price reduced which annoys shareholders
- Large corporations such as PLCs have owners (shareholder) who do not run firm but vote in Board of Directors to run firm day to day.
- Profit Maximisation
Similar Economics resources:
Teacher recommended
Comments
No comments have yet been made