3_2_1_Business_Objectives_Overview_2023-12-07-171616_syix.pptx

CIE Economics PowerPoint

1. TUTOR2U.NET/ECONOMICS THEME 3 MICRO WHAT ARE THE MAIN BUSINESS OBJECTIVES?

2. TUTOR2U.NET/ECONOMICS THEME 3 MICRO WHAT ARE THE MAIN BUSINESS OBJECTIVES? Profit maximisation Sales revenue maximisation Sales growth maximisation Satisficing objective Business survival Environmental and social obligations Public interest objectives

3. TUTOR2U.NET/ECONOMICS THEME 3 MICRO PROFIT MAXIMISATION Profit maximisation Occurs when marginal revenue = marginal cost Marginal revenue (MR) is the change in total revenue from selling an extra unit Marginal cost (MC) is the change in total cost from producing an extra unit If MR>MC, then selling an extra unit will add to profit If MR<MC, then selling an extra unit will lower profit

4. TUTOR2U.NET/ECONOMICS THEME 3 MICRO REVENUE MAXIMISATION Revenues are maximised at an output level where marginal revenue = zero (MR=0) Marginal revenue is the change in total revenue from selling an extra unit The coefficient of price elasticity of demand when revenue is maximised is unity (1) Revenue maximisation occurs halfway down a linear (straight-line)n demand curve.

5. TUTOR2U.NET/ECONOMICS THEME 3 MICRO SALES GROWTH MAXIMISATION Sales maximization focuses on generating the highest possible level of sales within a given period perhaps as part of a wider objective of growing market share and/or building a brand As sales increase, a business may be able to take advantage of economies of scale, leading to lower average costs. This could potentially enhance the business's profitability in the long run. Strong sales figures can attract investor interest and make it easier for a business to secure financing for growth and expansion. Sales maximisation occurs when price per unit = average cost

6. TUTOR2U.NET/ECONOMICS THEME 3 MICRO SATISFICING OBJECTIVES Satisficing involves the owners of a business (shareholders) setting minimum acceptable levels of achievement of revenue and/or operating profits to managers (agents) The term "satisficing" is a combination of "satisfy" and "suffice," and it suggests that instead of trying to find the best possible outcome, decision-makers settle for options that meet a certain minimum level of requirements or criteria. In a world of complexity, decisions involve multiple factors, trade-offs, and uncertainties. Satisficing can simplify decision-making.

7. TUTOR2U.NET/ECONOMICS THEME 3 MICRO ENVIRONMENTAL & SOCIAL OBLIGATIONS Businesses are increasingly recognizing the importance of pursuing environmental and social objectives alongside traditional economic goals. This is also referred to as Corporate Social Responsibility (CSR) Reducing Carbon Emissions: Many companies are setting targets to reduce their carbon emissions and become carbon neutral. Waste Reduction and Recycling: Businesses can minimize waste generation and promote recycling to improve sustainability. Businesses can engage with local communities through initiatives such as funding education programmes, building infrastructure, or supporting healthcare facilities Philanthropy: Businesses often contribute to charities and social causes.

8. TUTOR2U.NET/ECONOMICS THEME 3 MICRO STAKEHOLDERS

9. THEME 3 MICRO TUTOR2U.NET/ECONOMICS The terms "shareholders" and "stakeholders" refer to distinct groups of individuals or entities that have an interest in a company. Shareholders own shares of a company's stock, which represents ownership in the company Stakeholders are a broader group. They are parties with diverse interests in the company's operations, reputation, and outcomes. This can include employees, customers, suppliers, local communities, government agencies, environmental groups, and more DIFFERENCE BETWEEN SHAREHOLDERS & STAKEHOLDERS

10. THEME 3 MICRO TUTOR2U.NET/ECONOMICS BUSINESS OBJECTIVES AND STAKEHOLDERS (OVERVIEW) Objective Shareholders Consumers Wider community stakeholders Profit maximisation (MC=MR) Firm makes the highest profit thus increasing returns for shareholders Higher prices and lower output lead to a lower level of consumer surplus Profits provide funds for investment and more tax revenue for the government to spend Sales revenue maximisation (MR=zero) Profits are lower than with profit maximisation so less is then available for shareholder dividends Lower prices than with profit maximisation – so a probable gain in consumer surplus Likely to be nearer allocative and productive efficiency at a lower price and higher output - thus community/society benefits Sales maximisation (AC=AR) Normal profit earned so shareholders will usually receive lower dividends. Prices are lower than profit maximisation, so customers benefit. AR=AC thus firm maximises output which may benefit employment at the firm.

11. TUTOR2U.NET/ECONOMICS GIVE ME 3… Reasons why businesses change their objectives over time BUSINESS OBJECTIVES

12. GIVE ME 3… 1 Changing Market Conditions: Factors such as technological advancements and cyclical fluctuations can impact demand. In a recession for example, firms might depart from pure profit maximisation and focus on revenue maximisation to improve their cash flow. BUSINESS OBJECTIVES Reasons why businesses change their objectives over time TUTOR2U.NET/ECONOMICS

13. GIVE ME 3… 1 2 Changing Market Conditions: Factors such as technological advancements and cyclical fluctuations can impact demand. In a recession for example, firms might depart from pure profit maximisation and focus on revenue maximisation to improve their cash flow. Changing contestability: For instance, if a new competitor enters the market, a business might need to modify its goals to protect market share and supernormal profits. In a highly contestable market, profit margins get squeezed and tend towards a normal level. BUSINESS OBJECTIVES Reasons why businesses change their objectives over time TUTOR2U.NET/ECONOMICS

14. GIVE ME 3… 1 2 3 Changing Market Conditions: Factors such as technological advancements and cyclical fluctuations can impact demand. In a recession for example, firms might depart from pure profit maximisation and focus on revenue maximisation to improve their cash flow. Changing contestability: For instance, if a new competitor enters the market, a business might need to modify its goals to protect market share and supernormal profits. In a highly contestable market, profit margins get squeezed and tend towards a normal level. Integration of ESG goals: Shareholders, particularly socially responsible funds, may emphasize the importance of ESG factors. As a result, businesses may incorporate ESG into their objectives – focusing on sustainability, ethical practices, and social responsibility. BUSINESS OBJECTIVES Reasons why businesses change their objectives over time TUTOR2U.NET/ECONOMICS

15. Price and Cost Output (Q) Average Revenue (AR) Marginal Revenue (MR) Marginal Cost (MC) Average Total Cost (AC) P1 Q1 AC1 Profit Maximisation where MC=MR

16. Price and Cost Output (Q) Average Revenue (AR) Marginal Revenue (MR) Marginal Cost (MC) Average Total Cost (AC) P1 Q1 AC1 Profit Maximisation where MC=MR

17. Price and Cost Output (Q) Average Revenue (AR) Marginal Revenue (MR) Marginal Cost (MC) Average Total Cost (AC) P1 Q1 AC1 Revenue Maximisation, where MR=0 Q2 P2 AC2

18. Price and Cost Output (Q) Average Revenue (AR) Marginal Revenue (MR) Marginal Cost (MC) Average Total Cost (AC) P1 Q1 AC1 Revenue Maximisation, where MR=0 Q2 P2 AC2

19. Price and Cost Output (Q) Average Revenue (AR) Marginal Revenue (MR) Marginal Cost (MC) Average Total Cost (AC) P1 Q1 AC1 Sales Maximisation, where AC=AR, normal profit made Q2 P2 AC2 Q3 P3 = AC3