Objective of Firms - Edexcel Unit 3

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Harry Bindloss
1. Survival ­ The early stages of training ­ Most firms begin small and grow. It is quite a
success for a small business to last its first few years. Firms encounter several problems
when they begin trading, which puts them at a disadvantage to incumbent and large
Lack of experience
Lack of resources
Competition from established firms
Unforeseen costs
Limited recognition by customers
2. Satisficing ­ It may seem reasonable to assume that firms aim for as much profit as
possible but in practice a business is more likely to have a satisfactory or acceptable level
of profit. This is known as satisficing and occurs due to:
For owners of small firms ­ Happy at present levels, VAT threshold. Involves more
workers, more decisions, more time etc.
Lack of information ­ For any business it may be very difficult to actually identify just
where the profit maximising position is.
Other aims ­ a business may sacrifice short term profit for long term profits. A lower
price initially to build up a market etc.
3. Growth ­ If the business getting bigger some argue that firms need to grow in order to
survive. Failure to grow might lead to a reduction in competitiveness, a decline in
demand and eventually closure. Growth may lead to market domination and all the
advantages of a monopolist ­ raising prices.
4. Managerial Objectives - Sometimes the managers in the firm are able to pursue their
own objectives. For this to happen there must be some divorce of ownership for
Allocate themselves luxury company cars
Maximise personal salary
Maximise departmental budget ­ power and status
Improve their status and recognition
Maximise the number of employees in their charge ­ power
Maximise their leisure time
Delegate as much work as possible

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Harry Bindloss
5. Sales revenue maximisation ­ This is not the same as profit maximisation. We are only
looking at revenue. In profit maximisation we look at costs and revenue. This objective
will be favoured by those employees whose salaries are linked to sales. Those on some
kind of commission and managers.
6. Image and social responsibility ­ In recent years firms have become concerned with
their image as they have seen how it can affect sales.…read more


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