3.1 Business Objective

• Max objective:Profit Maximisation

  Occurs when a firms total sales revenue is furthest above total cost of production. Leading to the highest profit made
• Max objective: Sales Revenue Maximisation MR=0

  The objective of achieving as high a total revenue as possible, without worrying about cost implications
• Max objective:Sales volume maximisation

  When a company adjusts price in order to maximise the number of units sold, often to gain the benefits of a high market share, when launching a new product or building up customer loyalty
• Max objective: Growth Maximisation

  The objective of increasing the size of the firm as much as possible
• Max objective:Utility Maximisation

  The aim of trying to achieve the highest level of personal satisfaction possible from managing a business (possibly at the detriment of the business) e.g giving urself a higher wage instead of investing profits back into the busines
• Non-Max objective:Profit Satisficing

  Making enough profit to satisfy the needs of the business owner(s) and satisfy other stakeholders
• Non-max objective:Social welfare

  When a business aims to make society better through its actions e.g. charities
• Non-max objective:Corporate Social Responsibility

  When a business is responsible to the major stakeholders and so aims to make a profit, do good for society and improve the environment.
• Principal-agent Problem

  A problem caused by agents pursing their own objectives rather than the objectives of the principals who hired them.
• Factor which influence the choice of objectives:

  1)What stage the business is at. A new business is unlikely to set profit max as an objective

  2)Owner’s/founder’s wishes. Some business are purely set up as non-profit-making firms.

  3)The timescale. Many businesses may have profit max as a long term objective but in the short term they may focus on other objectives.

  4)The state of the macroeconomy. businesses often need to respond to macroeconomic conditions
• Business Objective Graph

  A) Profit Max

  B) MC

  C) Revenue Max

  D) AC

  E) Sales Max

  F) AR=AC

  G) AR

  H) MR

  I) Cost

  J) Output