Summary 3.2 Business Objectives

3.2
BUSINESS OBJECTIVES
Firms are assumed to maximise profits, however firms may pursue other
business objectives such as:
revenue maximisation
sales maximisation
profit maximisation
corporate social responsibility


PROFIT MAXIMISATION
helps generate funds for investment
helps them to survive a slowdown during a recession

SHAREHOLDERS
Shareholders want firms to maximise profit
firms profits may be distributed to the shareholders as dividends
this increases the income of the shareholders
profitable businesses attract new investors, boosting share prices
shareholders will then earn capital gain which increases their wealth
shareholders can increase their consumption with higher income or wealth
However firms may not distribute their dividends
may use it to finance further investment instead

DIAGRAM
The profit maximising condition is when MR=MC (when it intersects on the graph)


3.2 1

, REVENUE MAXIMISATION
Revenue maximisation is when the total revenue is at its maximum

WHY REVENUE or SALES MAXIMISE?
managers may have pay packages linked to sales revenue or sales volume
fast growing firms may attract investors
lower ‘predatory pricing’ can help deter competitors
firms can enjoy economies of scale over the long run
revenue max may draw less attention from CMA or other market authority
high profits may lead to profit regulation
revenue max can help if there is a short term need for cash
they may need this for bankruptcy or investment

DIAGRAM
The revenue maximising condition is when MR=0




3.2 2