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A LevelEconomicsEdexcelEconomics AFlashcards3. Business Behaviour & the Labour Market3.2 Business Objectives

3.2 Business Objectives (Edexcel A Level Economics A)

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    What is profit maximisation?

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  • What is profit maximisation?

    Profit maximisation is when a firm produces at the level of output where marginal costs (MC) = marginal revenue (MR).

  • Define the term revenue maximisation.

    Revenue maximisation is when a firm produces at the level of output where marginal revenue (MR) = 0.

  • True or false?

    Sales maximisation occurs at the level of output where average costs (AC) = average revenue (AR).

    True.

    Sales maximisation occurs at the level of output where average costs (AR) = average revenue (AR).

  • What does satisficing mean?

    Satisficing means settling for a level of output somewhere between profit and sales maximisation, often due to the principal-agent problem.

  • State the formula for profit maximisation.

    Profit maximisation is at the output where:

    MC space equals space MR

  • Which business objective often results in high prices for consumers?

    Profit maximisation often results in high prices for consumers.

  • What is the connection between revenue maximisation and the principal-agent problem?

    The principal-agent problem relates to revenue maximisation, as managers may prioritise maximising sales to increase their own commission. Profit maximising becomes less important to managers than owners.

  • What is the level output at which breakeven occurs?

    The level output at which breakeven occurs is where average costs (AC) = average revenue (AR). This results in normal profit.

  • True or false?

    Firms always know their exact profit maximisation level of output.

    False.

    Firms may find it difficult to determine their exact profit maximisation level of output.

  • Define the term supernormal profit.

    Supernormal profit is the difference between the selling price (AR) and the average cost (AC) multiplied by the quantity produced.

  • What is the relationship between marginal revenue and total revenue at the revenue maximisation output level?

    At the revenue maximisation output level, marginal revenue (MR) = 0. This means selling another unit will not increase total revenue.

  • How do firms benefit from pursuing a revenue maximisation strategy in the short -term?

    In the short term, firms may benefit from a revenue maximisation strategy by increasing output. This leads to greater economies of scale, which lower average costs. Prices could be reduced to compete more effectively.

Previous:3.1 Business GrowthNext:3.3 Revenues, Costs & Profits

    1. Topic 1

      1.1 Nature of Economics

    2. Topic 2

      1.2 How Markets Work

    3. Topic 3

      1.3 Market Failure

    4. Topic 4

      1.4 Government Intervention

    1. Topic 1

      2.1 Measures of Economic Performance

    2. Topic 2

      2.2 Aggregate Demand (AD)

    3. Topic 3

      2.3 Aggregate Supply (AS)

    4. Topic 4

      2.4 National Income

    5. Topic 5

      2.5 Economic Growth

    6. Topic 6

      2.6 Macroeconomic Objectives & Policies

    1. Topic 1

      3.1 Business Growth

    2. Topic 2

      3.2 Business Objectives

    3. Topic 3

      3.3 Revenues, Costs & Profits

    4. Topic 4

      3.4 Market Structures

    5. Topic 5

      3.5 Labour Market

    6. Topic 6

      3.6 Government Intervention

    1. Topic 1

      4.1 International Economics

    2. Topic 2

      4.2 Poverty & Inequality

    3. Topic 3

      4.3 Emerging & Developing Economies

    4. Topic 4

      4.4 The Financial Sector

    5. Topic 5

      4.5 Role of the State in the Macroeconomy