BUSINESS OBJECTIVES

• Firm's motives


  Determined by who controls it
• People who could have control

  • Owners or shareholders
  • Directors and managers
  • Workers (through a trade union)
  • The state (through regulation, taxes/subsidies and direct control)
  • Consumers (through their consumer sovereignty)
  • Pressure groups
• Profit maximisation


  Neo-classical economics assumes the interests of owners or shareholders are the most important, so the goal of firms is to profit maximise in the short run to maximise owners' returns
• To short run profit maximise


  Firms produce where MC=MR
• Firms likely to profit maximise

  • Apple
  • Pharmaceutical companies
• Revenue maximisation


  Managers are most interested in their level of revenue since this is what their salary depended on
• To revenue maximise


  Firms produce where MR=0
• Firms following revenue maximisation

  • Amazon
• Sales maximisation


  Managers aim to maximise the growth of their company above any other objective, as their salary may be linked to the size of the company
• To sales maximise


  Firms produce where AC=AR
• Firms following sales maximisation


  • Netflix
  • Spotify
• The problem with both sales maximisation and revenue maximisation is that it necessitates a fall in price, which other firms may copy and so there may be no or little increase in revenue or sales
• Satisficing


  Due to the principal-agent problem, owners and directors will have different goals. Directors will want to maximise their own benefits but will need to make a certain amount of profit in order to keep their jobs, receive benefits and avoid criticism from shareholders/the press
• Managers are likely to follow the objective of profit satisficing: they will make enough profit to keep owners happy whilst following other objectives and not profit maximising