Objectives of Firms - 1
Three Objectives of a Firm:
- Profit Maximisation MR=MC (MC must be rising)
- Revenue Maximisation MR=0
- Sales Maximisation AR=AC
1) Profit Maximisation: Where the revenue gained from selling one more unit (MR) is exactly equal to the cost of producing one more unit (MC)
2) Revenue Maximisation: Selling output until the last unit sold adds nothing to TR, since the next unit sold will reduce TR. Assumes that the firm is ignoring all costs, or if there are no VC's.
Purposes: To increase market share or To dispose all stock.
Objectives of Firms - 2
3) Sales Maximisation: Selling as much as possible subject to the constraint that it at least makes normal profit.
- To increase market share to get rid of competitors via cutting its prices.
- To avoid the attention of competition authorities.
4) Satisficing - Making enough profit to keep shareholders happy to allow other motives to be pursued