Connected
My tips
Theory of the firm:
Behaviour = How a firm acts in terms of prices and competition.
Performance = How well a firm is doing
● Profit
● Market Share Measurements of performance
● Turnover
Traditional Economics Theory states that firms are out to maximise profit but their main
objective is to maximise profit at point MC=MR
[Make sure whenever you are mentioning firms are out to profit maximise that you put
(MC=MR) to show your knowledge to the examiner]
Objectives of firms:
1. Profit Maximisation (MC = MR)
2. Profit Satisficing = Making enough profit to comfortably carry on the business
3. Sales maximising (Focusing mainly on trying to increase their market share and
improve customer loyalty possibly through lower prices)
4. Growth (Aiming on improving and expanding capital and size of the firm through
economies of scale or merging)
5. Survival (New firms trying to compete and stay profitable from larger rivals)
6. Providing a service (State owned services such as hospitals. Schools etc.)
Since there are different objectives it does not mean that firms may not always wish to
profit maximise but we must also consider the shareholder concept. Firstly we will
need to go through all the different ownerships to understand the shareholder
concept.
My tips
Theory of the firm:
Behaviour = How a firm acts in terms of prices and competition.
Performance = How well a firm is doing
● Profit
● Market Share Measurements of performance
● Turnover
Traditional Economics Theory states that firms are out to maximise profit but their main
objective is to maximise profit at point MC=MR
[Make sure whenever you are mentioning firms are out to profit maximise that you put
(MC=MR) to show your knowledge to the examiner]
Objectives of firms:
1. Profit Maximisation (MC = MR)
2. Profit Satisficing = Making enough profit to comfortably carry on the business
3. Sales maximising (Focusing mainly on trying to increase their market share and
improve customer loyalty possibly through lower prices)
4. Growth (Aiming on improving and expanding capital and size of the firm through
economies of scale or merging)
5. Survival (New firms trying to compete and stay profitable from larger rivals)
6. Providing a service (State owned services such as hospitals. Schools etc.)
Since there are different objectives it does not mean that firms may not always wish to
profit maximise but we must also consider the shareholder concept. Firstly we will
need to go through all the different ownerships to understand the shareholder
concept.
