MYTUTOR SUBJECT ANSWERS

271 views

What are the objectives of a firm?

A firm can have a number of objectives some of which can carry drawbacks. (All these objectives can also be accompanied with diagrams.)

1.Profit Maximisation ( at the point MC=MR)

this keeps shareholders happy, provides reinvestment opportunities, and create greater efficiency for the firm. 

BUT 

the point where marginal costs (MC) are equal to marginal revenue (MR) is difficult to calculate as MC includes physical costs and the opportunity cost- which is hard to quantify.

Additionally firms have greater risk of investigations by regulatory authorities if huge profits are being made.

2. Profit satisficing- which occurs when there is a divorce of ownership of control. So firms have to profit satisfice; make a level of profit which satisfies all stakeholders.

3. Survival e.g. this is typical of firms in the transport sector where there are high fixed costs to set up due to competition in the industry; so survival is good enough.

4. Revenue Maximisation (MR=0)

e.g. predatory pricing due to competition in the industry ( price driven down; this drives out competion and quantity driven down; as firms grow in size they may benefit slightly from economies of scale)

4. Sales maximisation (AC=AR)

can occur when a firm is concerned about producing as much as possible and maximising the size of the business.

evaluation summry; 

show why profit max. may not work

other objectives (often due to conflicts between short term and long term goals)

highlight the growth versus profit conflict.

(remember to give examples to show application skills too)

Sarswati L. GCSE Economics tutor, A Level Economics tutor, 13 Plus  E...

6 months ago

Answered by Sarswati, an A Level Economics tutor with MyTutor


Still stuck? Get one-to-one help from a personally interviewed subject specialist

57 SUBJECT SPECIALISTS

£24 /hr

Grace D.

Degree: Economics (Bachelors) - Newcastle University

Subjects offered:Economics, Maths+ 2 more

Economics
Maths
Geography
English

“About me:I am currently in my second year of an Economics degree at Newcastle Univeristy. I am very passionate about my subject and am a leading member of the Economics Society there, in addition to competing in various Business and ...”

£36 /hr

Akshay D.

Degree: Finance Accounting & Management BSc (Bachelors) - Nottingham University

Subjects offered:Economics, Geography

Economics
Geography

“About Me: - A Second Year Student studying Finance Accounting & Management  - Tutored Economics and Geography in the past to younger students.  - I am a trust worthy individual who will provide a first class high quality service to e...”

£36 /hr

Alec E.

Degree: Economics with Finance (Bachelors) - Edinburgh University

Subjects offered:Economics, Maths+ 1 more

Economics
Maths
-Personal Statements-

“Hello! I am an experienced tutor (100+ hours) currently earning my MA (Hons) in Economics at the University of Edinburgh. ”

MyTutor guarantee

About the author

Sarswati L.

Currently unavailable: for new students

Degree: Economics (Bachelors) - Bristol University

Subjects offered:Economics, Maths+ 2 more

Economics
Maths
Latin
-Personal Statements-

“About me   I am an Economics Student at The University of Bristol. I love the subject as it's so dynamic and it's interesting to see real world application of theories and models we learn in current and past events. I really enjoy th...”

MyTutor guarantee

You may also like...

Posts by Sarswati

What are the objectives of a firm?

What is the purpose of the gerundive case?

Other A Level Economics questions

Why do markets fail?

why is the profit maximising output where marginal cost (MC)= marginal revenue (MR)?

What is inflation?

What are barriers to entry?

View A Level Economics tutors

We use cookies to improve your site experience. By continuing to use this website, we'll assume that you're OK with this. Dismiss

mtw:mercury1:status:ok