Microeconomic business objectives

• What is the primary objective of firms in traditional economic theory?

  Profit maximization
• Why is profit maximization important for reinvestment in a business?

  It allows businesses to reinvest profits into new capital, technology, and R&D
• How do large profits benefit pharmaceutical and electronics companies specifically?

  They can reinvest profits into research and development
• What is the purpose of paying greater dividends to shareholders?

  To reward shareholders who are the owners of the company
• How does keeping costs low relate to profit maximization?

  Lower costs can lead to higher profits, which can be passed on to consumers as lower prices
• What is the profit equation?

  Profit = Total Revenue - Total Costs
• At what point does profit maximization occur?

  When marginal cost equals marginal revenue
• Why can't profit maximization occur at quantities to the right of where marginal cost equals marginal revenue?

  Because costs are higher than revenue, generating a loss
• Why wouldn't a business stop at a point where revenue is much higher than cost?

  Because each extra unit would generate more profit as long as marginal revenue is greater than marginal cost
• What are some reasons businesses might not profit maximize?

  They may not know their marginal cost and marginal revenue
• How can avoiding scrutiny affect a firm's decision to profit maximize?

  Avoiding scrutiny can lead firms to lower profits to prevent regulatory investigations
• What could happen if a business harms key stakeholders while profit maximizing?

  They could suffer from a bad reputation or face strikes from workers
• What is profit satisficing?

  It occurs when a business sacrifices profit to satisfy key stakeholders
• Who are considered key stakeholders in a business?

  Anyone with an interest in how the business performs, such as shareholders, consumers, and employees
• What is the potential consequence of harming consumers through profit maximization?

  A business could suffer from a bad reputation
• What is revenue maximization?

  It occurs where marginal revenue is equal to zero
• What is the relationship between profit maximization and revenue maximization on a diagram?

  Profit maximization occurs where marginal cost equals marginal revenue, while revenue maximization occurs where marginal revenue is zero
• What are economies of scale?

  Cost advantages that businesses experience as they increase their output
• What is the principal-agent problem?

  It refers to the conflict of interest between shareholders (principals) and managers (agents)
• What is sales maximization?

  It is the objective of becoming as large as possible without making a loss
• What is the breakeven point in sales maximization?

  It occurs where average cost equals average revenue
• How can limiting competition be a reason for sales maximization?

  By pricing at breakeven, a business can deter new firms from entering the market
• What is the short-run objective of survival in a hyper-competitive market?

  To spread brand awareness and ensure consumers are aware of the product
• What is the objective of public sector organizations?

  To maximize society's interest and welfare
• What is corporate social responsibility?

  Recognizing social responsibility and acting ethically in business practices
• What are the four main objectives of firms discussed in the study material?

  • Profit maximization
  • Profit satisficing
  • Revenue maximization
  • Sales maximization
• How do profit maximization, profit satisficing, revenue maximization, and sales maximization relate to each other on a diagram?

  • Profit maximization occurs where marginal cost equals marginal revenue.
  • Revenue maximization occurs where marginal revenue equals zero.
  • Profit satisficing occurs between profit maximization and sales maximization.
  • Sales maximization occurs at the breakeven point where average cost equals average revenue.
• What are the potential consequences of a business harming key stakeholders while pursuing profit maximization?

  • Bad reputation among consumers
  • Strikes from workers
  • Investigations by the government
  • Protests from environmental groups
• What are some ethical practices businesses might engage in under corporate social responsibility?

  • Charitable donations
  • Sustainable production methods
  • Fair wages for workers and suppliers
  • Ethical testing practices (e.g., no animal testing)