A LEVEL ECONOMICS
NOTES
Evaluate the best business objective
Exclaimer*: This is just a plan. Further deepen analysis with context and own knowledge
Cost/revenue diagrams can be included to help deepen analysis
Point 1: Sales maximisation
Small firms will usually sales maximise in order to grow their business quickly=
Sales maximisation occurs when a firm operates at AC=AR which is the maximum possible quantity
for firms to output at whilst still making normal profits=
This is so the firm can stay in the market without shutting down=
As a result, output is maximised at Q1 meaning the firm outputs a great quantity=
Therefore they are prioritising their brand exposure meaning that their market share may increase as
they are selling lots of their product=
Also, costs are high for firms as they may have high advertising costs to increase this brand
awareness=
As a result market share may increase=
But also a brand loyalty may be created as the firm gets larger and their brand awareness rises=
As a result, demand may become more inelastic for the firm in the long run and this they may be able
to raise prices without much of a fall in quantity demanded=
Therefore they can generate extra revenues in the long run and perhaps more profits
Evaluation Point 1: Incumbent firms
However, large incumbent firms may already have such significant market share that sales
maximisation does not lead to greater brand loyalty for smaller firms=
Large firms have existing brand loyalty so the demand is likely to be relatively inelastic for their
goods=
Therefore an increase in sales may not actually translate to more market share for smaller firms=
NOTES
Evaluate the best business objective
Exclaimer*: This is just a plan. Further deepen analysis with context and own knowledge
Cost/revenue diagrams can be included to help deepen analysis
Point 1: Sales maximisation
Small firms will usually sales maximise in order to grow their business quickly=
Sales maximisation occurs when a firm operates at AC=AR which is the maximum possible quantity
for firms to output at whilst still making normal profits=
This is so the firm can stay in the market without shutting down=
As a result, output is maximised at Q1 meaning the firm outputs a great quantity=
Therefore they are prioritising their brand exposure meaning that their market share may increase as
they are selling lots of their product=
Also, costs are high for firms as they may have high advertising costs to increase this brand
awareness=
As a result market share may increase=
But also a brand loyalty may be created as the firm gets larger and their brand awareness rises=
As a result, demand may become more inelastic for the firm in the long run and this they may be able
to raise prices without much of a fall in quantity demanded=
Therefore they can generate extra revenues in the long run and perhaps more profits
Evaluation Point 1: Incumbent firms
However, large incumbent firms may already have such significant market share that sales
maximisation does not lead to greater brand loyalty for smaller firms=
Large firms have existing brand loyalty so the demand is likely to be relatively inelastic for their
goods=
Therefore an increase in sales may not actually translate to more market share for smaller firms=
