objectives of firms

• One reason firms aim for profit maximization is to reinvest into research and development
• Pharmaceutical and electronics companies heavily rely on profit maximization to fund research and development.
• What is the term for a share of a company's profit paid to shareholders?

  Dividends
• Profit maximization can lead to lower costs, which may result in lower prices for consumers
• Profit maximization rewards entrepreneurship by compensating for risk-taking activity.
• Steps in the process of profit maximization

  1️⃣ Marginal cost equals marginal revenue

  2️⃣ No extra profit can be made

  3️⃣ Profit maximization achieved
• Firms always have precise knowledge of their marginal cost and marginal revenue.

  False
• What might firms avoid by not maximizing profits?

  Scrutiny
• Competition authorities may investigate firms making excessively high profits
• Investigations by competition authorities often increase costs for businesses.
• Match the stakeholder with a potential concern related to profit maximization:

  Consumers ↔️ Excess prices

  Workers ↔️ Low wages

  Environmental groups ↔️ Pollution
• What term describes the situation where a business sacrifices profit to satisfy key stakeholders?

  Satisficing
• If a business harms consumers, it may suffer from a negative reputation
• Steps in the process of revenue maximization

  1️⃣ Marginal revenue equals zero

  2️⃣ Determine the quantity from the AR curve

  3️⃣ Read the price from the AR curve
• Revenue maximization results in a higher price compared to profit maximization.

  False
• What is predatory pricing, and why is it unethical?

  Underpricing to drive out competitors
• The principal-agent problem arises from the divorce between ownership and control
• Managers may use revenue maximization to justify perks like higher salaries.
• What is the objective of sales maximization for a business?

  Growth without loss
• Sales maximization occurs where average cost equals average revenue.
• Limit pricing is a strategy used in sales maximization to prevent new firms from entering the market
• Flooding the market with products can build brand loyalty.
• Why might a firm pursue survival as a short-term objective?

  Hyper competitive market
• Public sector organizations aim to maximize societal welfare by producing where demand equals supply.
• Corporate social responsibility includes actions like environmental sustainability and ethical practices
• The Body Shop is an example of a company that prioritizes ethical responsibility by avoiding animal testing.
• Match the objective with its corresponding focus:

  Profit maximization ↔️ Increasing dividends

  Satisficing ↔️ Balancing stakeholder interests

  Revenue maximization ↔️ Lowering prices for consumers

  Sales maximization ↔️ Limiting competition