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    B) Business Objectives

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    Mohamed Ibrahim
    Business objectives can include profit maximization, sales maximization, satisficing, survival, increasing market share, cost efficiency, return on investment, employee welfare, customer satisfaction, and social objectives. Profit maximization involves producing where marginal cost equals marginal revenue to maximize profits. Sales maximization aims to sell as much as possible without making a loss. Satisficing earns enough profits to keep shareholders happy. Survival is important for new or struggling firms. Market share and cost efficiency provide competitive advantages. Return on investment rewards entrepreneurial risk-taking. Employee welfare and customer satisfaction improve productivity and competitiveness. Some firms prioritize social objectives and corporate social responsibility.

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    B) Business Objectives

    Uploaded by

    Mohamed Ibrahim
    23 views5 pages
    Business objectives can include profit maximization, sales maximization, satisficing, survival, increasing market share, cost efficiency, return on investment, employee welfare, customer satisfaction, and social objectives. Profit maximization involves producing where marginal cost equals marginal revenue to maximize profits. Sales maximization aims to sell as much as possible without making a loss. Satisficing earns enough profits to keep shareholders happy. Survival is important for new or struggling firms. Market share and cost efficiency provide competitive advantages. Return on investment rewards entrepreneurial risk-taking. Employee welfare and customer satisfaction improve productivity and competitiveness. Some firms prioritize social objectives and corporate social responsibility.

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    this is for the IGCSE ECONOMICS Cambridge sylabus

    Original Title

    b) Business objectives

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    Business objectives can include profit maximization, sales maximization, satisficing, survival, increasing market share, cost efficiency, return on investment, employee welfare, customer satisfaction, and social objectives. Profit maximization involves producing where marginal cost equals marginal revenue to maximize profits. Sales maximization aims to sell as much as possible without making a loss. Satisficing earns enough profits to keep shareholders happy. Survival is important for new or struggling firms. Market share and cost efficiency provide competitive advantages. Return on investment rewards entrepreneurial risk-taking. Employee welfare and customer satisfaction improve productivity and competitiveness. Some firms prioritize social objectives and corporate social responsibility.

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    © All Rights Reserved
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    23 views5 pages

    B) Business Objectives

    Uploaded by

    Mohamed Ibrahim
    Business objectives can include profit maximization, sales maximization, satisficing, survival, increasing market share, cost efficiency, return on investment, employee welfare, customer satisfaction, and social objectives. Profit maximization involves producing where marginal cost equals marginal revenue to maximize profits. Sales maximization aims to sell as much as possible without making a loss. Satisficing earns enough profits to keep shareholders happy. Survival is important for new or struggling firms. Market share and cost efficiency provide competitive advantages. Return on investment rewards entrepreneurial risk-taking. Employee welfare and customer satisfaction improve productivity and competitiveness. Some firms prioritize social objectives and corporate social responsibility.

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    of 5

    Edexcel​ ​(B)​ ​Economics​ ​A-level

    Theme​ ​1:​ ​Markets,​ ​Consumers​ ​and


    Firms
    1.1​ ​Scarcity,​ ​Choice​ ​and​ ​Potential
    Conflicts
    1.1.2​ ​Business objectives

    Notes

    www.pmt.education
    Different business objectives and reasons for them:

    o Profit maximisation
    Profit is an important objective of most firms. Models that consider the traditional
    theory of the firm are based upon the assumption that firms aim to maximise profits.
    Profit is the difference between total revenue (TR) and total cost (TC). It is the
    reward that entrepreneurs yield when they take risks.

    Firms break even when TR = TC.

    A firm profit maximises when they are operating at the price and output which
    derives the greatest profit. Profit maximisation occurs where marginal cost (MC) =
    marginal revenue (MR). In other words, each extra unit produced gives no extra loss
    or no extra revenue.

    Profits increase when MR > MC. Profits decrease when MC > MR.
    Some firms choose to profit maximise because:
    o It provides greater wages and dividends for entrepreneurs
    o Retained profits are a cheap source of finance, which saves paying high
    interest rates on loans
    o In the short run, the interests of the owners or shareholders are most
    important, since they aim to maximise their gain from the company.

    www.pmt.education
    o Some firms might profit maximise in the long run since consumers do not like
    rapid price changes in the short run, so this will provide a stable price and
    output.

    PLCs are particularly keen to profit maximise, because they could lose their
    shareholders if they do not receive a high dividend. They are more likely to have
    short run profit maximisation as an objective, because they need to keep their
    shareholders happy.

    o Sales maximisation
    This is when the firm aims to sell as much of their goods and services as possible
    without making a loss. Not-for-profit organisations might work at this output and
    price. This is where average costs (AC) = average revenue (AR).

    An example of sales maximising is Amazon’s Kindle launch. They sold as many


    Kindles as possible to gain market share, so they can earn more profits in the long
    run. It helps keep out and deter competitors.

    o Satisficing
    Another objective a firm might have is satisficing. A firm is profit satisficing when it is
    earning just enough profits to keep its shareholders happy.

    Shareholders want profits since they earn dividends from them. Managers might not
    aim for high profits, because their personal reward from them is small compared to
    shareholders. Therefore, managers might choose to earn enough profits to keep
    shareholders happy, whist still meeting their other objectives.

    This occurs where there is a divorce of ownership and control.

    Other objectives:

    o Survival

    Some firms, particularly new firms entering competitive markets, might aim to
    simply survive in the market. This is a short term view. During periods of economic
    decline such as the 2008 financial crisis, when consumer spending plummets, firms
    might have survival as their objective, until there is economic growth again. Firms
    might aim to sell as much as possible to keep their market position, even if it is at a
    loss in the short run.

    o Market share

    www.pmt.education
    This helps increase the chance of surviving in the market, and it can be achieved by
    maximising sales. For example, Amazon aimed to increase their market share in the
    e-reader market, by trying to sell as many Kindles as possible. They did this at a loss
    in the short run, but they gained customer loyalty and now they are a leading e-
    reader producer.

    o Cost efficiency

    The more cost efficient a firm is, the lower its average costs. This gives the firm a
    competitive advantage, since they can afford to charge consumers lower prices.
    Firms operating in competitive markets will need to be cost efficient to ensure they
    are not competed out of the market by more efficient producers.

    o Return on investment (ROI)

    Entrepreneurs take risks by making investments. The reward for taking these risks is
    profit, which is the return on their investment. The higher the ROI, the more
    attractive the investment is. The ROI can give firms an idea of how profitable an
    investment is, which is important for planning.

    o Employee welfare

    Some firms might try and ensure their employees are well looked-after. When
    employees are happy, they are more likely to be productive and do a good job. It
    also increases loyalty towards the employer, so the employee is less likely to leave
    the job. Google is renowned for their employee perks such as on-site physicians and
    travel insurance.

    o Customer satisfaction

    Firms might aim to increase their competitiveness by improving their quality and
    increasing their customer satisfaction. Firms might consider improving their
    customer service or the quality of the good they produce. This could be achieved
    through innovation. If firms can gain a reputation for high quality goods, they could
    potentially charge higher prices, since consumers might be willing to pay more for
    them.

    o Social objectives

    www.pmt.education
    Some firms might focus on social welfare and their Corporate Social Responsibility
    (CSR). They might take responsibility for consequences on the environment and aim
    to maximise social welfare. Firms might try and perform more ethically, especially if
    they have a philanthropic owner.

    www.pmt.education

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