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3.2 Business objectives

Business objectives

Profit maximisation
Means the highest possible profit for the risk-taker, usually the owner. Dominant goal of private enterprise. Balance of minimising costs and maximising revenue. 

 Profit maximisation occurs at MR = MC

Sales revenue maximisation
Gaining the maximum possible revenue from selling a product. A firm may do this to gain greater market share, or monopoly power in order to increase supernormal profits in the LR. Higher revenue/sales may make it easier for the firm to borrow. 

 Revenue maximisation occurs at MR = 0, so where the MR cuts the x-axis. 
Image result for revenue maximization

Were the firm to produce before this point, it would be losing out on additional output that would increase revenue (as MR above 0). Were it to produce where MR dipped below the x-axis, TR would decrease. 

 MR = 0 at the midpoint of AR, which is why revenue is maximised at unit elasticity. 

 Sales volume maximisation

Selling as many products as possible, without making a loss. This means the firm must produce an output where the total revenue just covers total costs. An approach likely to be adopted by managers/workers. Higher revenue/sales may make it easier for the firm to borrow. 

Sales maximisation is achieved when TC = TR, or AC = AR.

 This is the highest sustainable output in the LR, as increasing output any further would result in the firm making a loss. As it is, the firm will only make normal profit. 

 Satisficing 

Taking into account a number of competing objectives, like the ones mentioned above, without attempting to 'maximise' a single one. For example, managers may aim to please shareholders first by maximising profit, before attempting to reward themselves through sales revenue maximisation. This particular example is profit satisficing. 

 Often occurs when shareholders have conflicting objectives. 

Ethical goals 
Some firms have goals linked with the environment, carbon emissions, fair-trade, etc. Can also be social goals, linked with charities/the local community. 

 known as corporate social responsibility, where firms keep to bring benefit to society whilst trying to make supernormal profit (unlike not-for-profits) 
e.g using sustainable resources to help protect the environment 
supporting local businesses by paying more to use local suppliers 
paying workers above NMW/worker benefits rather than paying the minimum to minimise costs. 

 Publicising these goals can be good for brand image and actually increase profitability, so firms could be indirectly profit maximising this way. 

 Market share 
Increase a firm's share of the market. Often adopted by firms in markets with few firms (aka oligopolies), where winning market share from rivals is less risky and expensive that gaining brand new customers. Increase market share increases monopoly power and may lead to more profit in the long-run. 

Survival 
A more short-term view. Often new firms, such as start-ups in highly competitive markets simply want to survive. Involves keeping AR > AVC.  This is also a common motive in recessions, when consumer spending falls across the whole economy. 


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