1.5.3: Goals of the Firm

State additional goals of the firm (5)

Revenue maximization, growth maximization, marginal utility maximization, satisficing, corporate social responsibility

Explain revenue maximization

This occurs at the level of output were MR=0. Rev maximization approach may be more useful as sales can be identified and measured more easily over the SR, rewards for employees are linked with increased sales, leads to increase motivation.

draw a graph showing profit maximization according to the MR MC approach with firms that have control and no control over prices

2 graphs

draw total rev and cost curves demonstrating profit maximization and loss minimization when the firm has control over their prices

2 graphs

draw total rev and cost curves demonstrating positive, zero, and negative economic profit when the firm does not have control over their prices

3 graphs

Define satisficing

A business or firm objective to achieve a satisfactory outcome with respect to one or several objectives, rather than to pursue any one objective at the possible expense of others by optimizing (maximizing)

Define profit maximization

A possible objective of firms that involves producing the level of output where profits are greatest: where TR-TC is greatest or where MR = MC

Explain growth maximization

Firm aim to increase market share and increase the size of the firm by cutting price and increasing sales. This may come at the expense of lower profits, but in the LR allow firm to enjoy the benefits of economies of scale, diversified production, and greater market power

Explain corporate social responsibility

Firms are increasingly concerned with their social image as a negative image can decrease revenues even if the firm carries out unethical practices that reduces costs. This corporate image may be part of a business strategy to maximise profits, but it could also be a genuine desire to promote altruistic goals.

State the point of productive efficiency

MC = Min ATC

State the point of allocative efficiency

P(AR) = MC

explain profit maximization based on total revenue and cost approach

the profit-maximizing level of output occurs where TR-TC is a large as possible. If the difference between TR and TC is positive then the firm makes economic profit, if negative it makes a loss and if 0 it makes normal profit.

explain profit maximization based on marginal revenue and cost approach

the profit-maximizing or loss-minimizing level of output with this approach occurs where MC = MR