Profits benefit shareholders - increases share price and receive dividends
Occurs when MC=MR
Can be hard to find level of PM
In Short-Run, firms will seek to adjust marginal costs - regular price changes in SR would be disruptive to consumers
In Long-Run, firms will seek to adjust prices
CMA may force changes in price
PM level results in higher prices for consumers
Objectives of a Firm: Revenue Maximisation
Occurs when MR=0
Normally due to Principal-Agent Problem: sales managers gain commission - incentivises them to maximise sales
Firms maximise revenue in order to benefit from EoS
In SR, firms may use this strategy to eliminate competitors - lower prices = more market share
Objectives of a Firm: Sales Maximisation
Occurs when AC=AR
In SR, firms use this strategy to clear stock - sell it without making a loss per unit
What is Satisficing?
When a firm makes the satisfactory about of profit rather than Profit Maximisation to ensure shareholders maintain confidence in firm.
Occurs due to Principal-Agent Problem; Agents settle for level of output between profit and sales maximisation - increases wages and reduces conflict with shareholders
