3.1- Business objectives

• Profit maximisation


  When firms produce at a point which derives the greatest profit
• Sales revenue maximisation


  When firms produce at a point which derives the greatest revenue
• Sales volume maximisation


  When firms produce at a point where they sell as many of their goods and services as possible without making a loss
• Growth maximisation


  When firms aim to increase the size of their market share, for example through mergers
• Utility maximisation


  The aim of tying to achieve the highest level of personal satisfaction possible from managing a business
• Profit satisficing


  When a firm earns just enough profit to keep its shareholders happy
• Corporate social responsibility (CSR)


  When firms take responsibility for consequences on the environment and behave more ethically
• Principle-agent problem


  Where the agent makes decisions on behalf of the principle; the agent should maximise the benefits of the principle but have the temptation of maximising their own benefits
• Conglomerate integration


  The merger of firms with no common connection
• Horizontal integration

  The merger of firms in the same industry at the same stage of production
• Vertical integration


  When a firm merges or takes over another firm in the same industry, but at a different stage of production
• Diversification

  When firms grow by expanding their production through increasing output, widening their customer base, developing a new product or diversifying their range
• Profit maximisation


  Output where MR = MC
• Revenue maximisation


  When MR = 0
• Sales maximisation


  Output where AC = AR

  Normal profits
• Productive efficiency


  Producing goods and services at the lowest possible average cost.
• Allocative efficiency

  Allocative efficiency refers to the optimal allocation of resources to maximize societal welfare.

  output where price = marginal cost
• Corporate social responsibility

  Where a business includes the public interest in its decision making.

  Adopts an ethical code that accepts responsibility for the impact of its activities on stakeholders
• Revenue maximisation

  Attempt to maximise sales revenue

  where MR = 0
• satisfying is where an economic agent aims to perform satisfactory rather than to a maximum level, in order to be able to pursue other goals, such as leisure time
• Growth maximisation?

  firms may have their target to achieve growth in the short run, rather than prodit, in order to gain a large market share and then dominate the market in the long run.

  Can be measured by quantity of sales, number of employees or percentage market share
• Profit maximising level of output


  Where MC = MR
• Social welfare


  When a business aims to make society better through its actions

  • e.g. charities
• Factors which influence the choice of objectives


  What state the business is at

  Owner or founder’s wishes

  Timescale

  State of the macroeconomy
• Business objectives diagram