Chapter 5

• Business goals include:

  Maximising Profit

  Maximising market share

  Maximising growth

  Meeting shareholder demand

  Satisficing behaviour
• Profit motive refers to gaining the maximum amount of profit possible which is mainly done through lowest-cost for production and highest possible price.
• Shareholders want their share prices to go up as high as possible
• Share: dividends of a company's capitol
• Capital gain: share that was initially bought vs share that was gained in the end
• Due to shareholders, business have less freedom to make decisions which can increase profits, as shareholders may not agree with the decisions made
• Types of firms:

  • Sole trader
  • Partnership
  • Private company
  • Public company
• Sole trader and partnership firms are unincorporated form which means that they do not have stock holders
• A partnership business is when a company decides to partner with another, however
• A sole-trader company is when there is no stock available/not as many stockholders in the company. It also means no partnership, so usually, a small group/one person manages the company
• Private company is when a small group of people are able to hold stock in the certain company
• Public company is when a large amount of people can hold stock in the company and trade the stock easily
• Both private and public companies are incorporated enterprises since they incorporate stock holders
• A con of having stockholders is that they can determine how to spend resources and can act against any profit/growth maximising decisions
• Industry sectors focus on some aspect of providing value
• Investment decisions:

  • production methods
  • Prices
  • Employment
  • Output and profits
  • Types of products
  • Globalisation
  • Environmental sustainability
• Internal economies of scale occur before the technical optimum, where cost is decreasing, this includes:

  • Specialization of labor, where labor can be allocated better to maximize productivity
  • The company can invest in capital/higher grade capital resources to further increase efficiency
  • The company can trade in a market for their by-products
  • The firm can bulk-buy, significantly cutting costs.
  • The firm can further invest in research, and human capitol to create an employee loyalty to it.
• Internal diseconomies of scale occur after the technical optimum, where cost is reducing, this includes:

  • Duplication of roles
  • Management losing touch with employees, thus, personal upheavals may rise
  • Management losing overall administrative efficiency, leading to lesser efficiency.