Business Objectives

• What is meant by profit maximisation?

  Profits are maximisation at an output level where marginal cost = marginal revenue (MR=MC).
• What is meant by revenue maximisation?

  Revenues are maximised at an output where marginal revenue=zero (MR=0).
• What is meant by sales maximisation?

  Supplying the largest output possible consistent with earning at least normal profits where AR=AC.
• What is meant by satisficing behaviour?

  Satisficing behaviour involves the owners of a business (shareholders) setting minimum acceptable levels of achievement of either revenue or operating profits.
• What are the different entities for different objectives (goals)?

  • Managerial objectives/managerial utility
  • Information constraints/gaps
  • Small businesses/start-ups - different aims
  • State-owned corporations
• Give information about managerial objectives/managerial utility?

  • Revenue or sales growth is often preferred instead of profit maximisation.
  • Achieve a satisfactory profit/return for shareholders to reward them for risk-taking.
• Give information about information constraints/gaps:

  • Lack of accurate information on marginal costs & revenues in their markets.
  • Cost-plus pricing (average cost + variable profit) is a common pricing tactic - i.e. add a simple mark-up on the average cost, with the mark up being higher if demand is found to be price inelastic.
• Give information about small businesses/start-ups - different aims:


  • Many small firms are life-style businesses for owners.
  • Start-ups often target rapid growth of users rather than profits.
• Give information about state-owned corporations:

  • state-owned corporations are liekly to have a range of different economic and political objectives.
• Is minimum shareholders dividends an example of profit satisficing or profit maximisation?

  Profit Satisficing
• Is maximum shareholders dividends an example of profit satisficing or profit maximisation

  Profit maximisation
• Give some detail on managers aims:


  Managers have a more day-to-day view of aims -> may want to retain some profit instead of giving in the form of dividends to shareholders because they want to grow the business.
• What is a rough chain analysis of sales maximisation?

  Increase market share -> power -> price setting -> higher prices/force competition out -> profit maximisation.
• What is meant by social enterprises?

  Businesses with profits reInvested for social aims - profit, people and planet.