Micro 5.2 0.0 / 5 ? EconomicsThe Objectives of FirmsA2/A-levelAQA Created by: neve.whinnCreated on: 15-03-20 14:08 What is an objective? A target or aim. 1 of 19 What is assumed to be the main objective of firms? Profit maximisation. 2 of 19 What is profit maximisation? Making the maximum positive difference between costs and revenues. 3 of 19 What do entrepreneurs do if they believe profit can be made? Take a business risk. 4 of 19 What are 2 examples of what making large profits can enable a firm to do? Re-invest funds into developing new products, and pay out higher returns to shareholders. 5 of 19 Why may profit maximisation not always be achieved? The divorce of ownership from control that exists in large firms may lead to conflicting objectives. 6 of 19 What are 5 examples of objectives of firms? Profit maximisation, sales maximisation, survival, growth, increased market share. 7 of 19 When does sales maximisation occur? When firms’ sales revenue is at a maximum. 8 of 19 Where does sales maximisation occur? At the level of output at which the sale of one more unit would not add to overall revenue. 9 of 19 What does growth involve? A firm increasing its output and scale of operations, possibly in terms of expanding its productive base and the size of its workforce. 10 of 19 What can growth enable a firm to benefit from? Economies of scale. 11 of 19 What is an advantage of growth? It will help a business fend off any takeover bids from rival companies 12 of 19 What is increasing market share? When a firm seeks to maximise its percentage share of a market in terms of sales value or number of units sold. 13 of 19 What can firms take advantage of with the highest market share? The benefits of monopoly power. 14 of 19 How can a firm be seen as a good place to work? If there is commitment to satisfy the needs of stakeholders. 15 of 19 What are 3 examples of objectives of directors? Growth maximisation, sales revenue maximisation and satisficing. 16 of 19 How can growth maximisation benefit directors? Growth may boost the profile of senior managers, and reduce the threat of takeover, leading to a quiet life. 17 of 19 Why are firms more able to target a satisfactory, sub-optimal level of profit? It is difficult to produce at the output at which MC = MR. 18 of 19 Why is satisficing a realistic view? Manager operate operate with imperfect information, shareholders are subject to asymmetric information about the intentions of managers. 19 of 19
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