Chapter 2 - The objectives of firms

Chapter 2 - The objectives of firms

1. Normal profit-minimum cost needed to remain in the industry

   • Supernormal profit is anything above normal profit

2. Divorce of ownership from control - Any firm in which there are shareholders and managers

   • Sales maximisation - P=MC
   • Profit satisficing - making enough profit
     • Is a form of X efficiency
   • Profit maximisation - produce where MC = MR
   • cost plus pricing
   • Managerial theory
   • Organisational theory - relative power

3. Social objectives

   • Ethical supply chain
   • Environment
   • British goods only

4. PLC-LTD

5. Short term loss for long term profit

6. Growth

   • internal or Organic
   • External
     • Vertical integration forward/backward
     • Horizontal
     • Conglomerate
     • Lateral

7. Technological change

   • Lower MES
   • Better quality
   • LRAC lowered

8. Revenue maximisation, where MR=0