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Title: Business Objectives for A2 Economics
Description: Predominantly aimed at WJEC Economics A2 Specification Condensed Revision notes on Business Objectives in key question and answers Covers topics such as profit satisficing, why firms have different objectives, sacrificing profit for sales and why firms may follow ethical objectives.
Description: Predominantly aimed at WJEC Economics A2 Specification Condensed Revision notes on Business Objectives in key question and answers Covers topics such as profit satisficing, why firms have different objectives, sacrificing profit for sales and why firms may follow ethical objectives.
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Business Objectives
“Explain how firms may have different objectives such as maximisation
of profit, revenue or market share, survival, social and community
objectives
- explain that firms may satisfice by pursuing more than one objective”
Profit Maximisationoccurs when MC=MR
Protect/ increase market
share
Surviving an
economic
downturn/
recession
Business Objectives
may include:
Sales Revenue
Maximisation
-occurs when MR=0
Pursuing ethical
business objectives
-may incur expense for ethical considerations e
...
fair trade
products, products not tested on animals or products that don't
harm the environment
...
g
...
g
...
Owners and
shareholders may want to maximise profit, whereas managers have less
incentive for this
...
How can the problem of ‘satisficing’ be overcome?
Give managers share opportunities/Performance related pay
Why might firms seek to maximise their market share/sales
revenue even if it means less profit?
1)Increase monopoly power through increased market share, enables firms to
increase prices and make profit in the long run
2)Managers prefer to work in bigger companies
(higher prestige, salaries etc)
3)Increased market share may force rivals out of business
4)Predatory prices; involves making a short term loss to enable higher prices
in the future
How may a firm sacrifice short term profit for long run profit
maximisation?
1) Growth- mergers and takeovers, firms may be willing to lowere profit
levels to increase in size and gain more market share
2) investment e
...
in machinery, new capacity etc to enable higher
productivity and higher future profits
3) Predatory Prices- to out compete rivals
What is meant by profit satisficing?
Firms seek to achieve a satisfactory level for several objectives e
...
they may
buy fair trade products at a higher price rather that at the lowest cost
There is often a separation of ownership and control
...
Managers may ‘satisfice’ by setting minimum profit levels to keep the
shareholders happy, but maximise other objectives such as work morale
Title: Business Objectives for A2 Economics
Description: Predominantly aimed at WJEC Economics A2 Specification Condensed Revision notes on Business Objectives in key question and answers Covers topics such as profit satisficing, why firms have different objectives, sacrificing profit for sales and why firms may follow ethical objectives.
Description: Predominantly aimed at WJEC Economics A2 Specification Condensed Revision notes on Business Objectives in key question and answers Covers topics such as profit satisficing, why firms have different objectives, sacrificing profit for sales and why firms may follow ethical objectives.