business objectives

• What is the primary objective of most firms?

  Profit maximisation
• What does profit represent for entrepreneurs?

  It is the reward for taking risks
• When does a firm break even?

  When TR = TC
• How is profit maximisation achieved?

  When MC = MR
• What happens to profits when MR > MC?

  Profits increase
• What happens to profits when MC > MR?

  Profits decrease
• Why do some firms choose to profit maximise?

  • Greater wages and dividends for entrepreneurs
  • Retained profits save on loan interest
  • Short-run focus on owners' interests
  • Stability in price and output for consumers
• Why are PLCs particularly keen to profit maximise?

  To keep shareholders happy with dividends
• What is normal profit?

  Minimum reward to keep entrepreneurs supplying
• When does normal profit occur?

  When TR = TC
• What is supernormal profit?

  Profit above normal profit
• When does supernormal profit occur?

  When TR > TC
• What is revenue maximisation?

  Occurs when MR = 0
• What is sales volume maximisation?

  Aims to sell without making a loss
• How did Amazon exemplify sales maximisation?

  By selling many Kindles to gain market share
• What are the objectives of growth maximisation?

  • Increase firm size for economies of scale
  • Lower average costs in the long run
  • Expand product range or merge with firms
  • Participate in research and development
• Why do firms aim to increase market share?

  To enhance survival chances in the market
• What is utility maximisation for consumers?

  Generating the greatest satisfaction from consumption
• What is profit satisficing?

  When firms earn just enough profits for shareholders
• What is the principal-agent problem?

  Conflict of interest between shareholders and managers
• What happens when a firm sells shares?

  Owners lose some control over the firm
• What is the kinked demand curve model?

  • Illustrates price stability in an oligopoly
  • Assumes asymmetric reactions to price changes
  • Shows interdependence between firms
  • Features elastic and inelastic demand segments
• What does game theory predict in an oligopoly?

  Outcomes of decisions with incomplete information
• What is the dominant strategy in the Prisoner’s Dilemma?

  Both prisoners confess for minimal sentences
• What is a Nash equilibrium?

  Optimal strategy considering opponents' choices
• Why is the Nash equilibrium considered unstable?

  Incentive to cheat exists for both players
• How does the kinked demand curve relate to oligopoly interdependence?

  • Reflects firms' reactions to price changes
  • Shows how demand elasticity varies with price
  • Highlights the impact of competitors' decisions