Help
Options
Didn't know it?
click below
click below
Knew it?
click below
click below
Don't Know
Remaining cards (0)
Know
retry
shuffle
restart
0:00
Embed Code - If you would like this activity on your web page, copy the script below and paste it into your web page.
Normal Size Small Size show me how
Normal Size Small Size show me how
Economics 3.2.1
Economics- Edexcel 3.2.1
| Term | Definition |
|---|---|
| profit maximisation | profits are maximised at an output level where marginal cost is equal to marginal revenue |
| revenue maximisation | revenues are maximised at an output where marginal revenue is equal to zero |
| sales maximisation | supplying the largest output possible consistent with earning at least normal profits where average revenue equals average total cost |
| satisficing behaviour | involves the owners of a business setting minimum acceptable levels of achievement of either revenue or operating profits |
| reasons for different objectives | managerial objectives/utility, information constraints/gaps, small businesses/start-ups, state-owned corporations |
| managerial objectives | revenue or sales growth preferred over profit maximisation to achieve a satisfactory profit/return for shareholders to reward them for risk-taking |
| information constraints/gaps business objectives | lack of accurate info on marginal cost & revenues in their markets, cost-plus pricing is a common pricing tactic(business adding a simple mark-up on average cost with mark up being higher if demand is price inelastic) |
| small businesses with different aims | many small firms are life-style businesses for owners they can survive with a reasonable profit, start-ups often target rapid growth of users rather than pure profit |
| benefits from aiming to maximise profits | shareholders benefit from higher dividends, employees may gain if pay is linked to profitability, higher profits lead to increased capital investment spending which will benefit other businesses in industries |
| drawbacks from aiming to maximise profits | higher prices for consumers reducing real incomes + lower level of consumer surplus, incentive for new firms to enter market reducing returns to shareholders in long run, companies overly focused on maximising profits lose sight of social/ethical/enviro |
| loss minimisation | losses minimised at same ouput as profit maximisation |
| William Baumol | focussed on decisions of manager-controlled businesses, found salaries & rewards for managers closely linked to revenue rather than profits |
| business aims to maximise sales revenue | deter new entrants, but has reduction in price of firm’s shares since operating profit is likely to be lower |
| sales maximising output | when a business maximises output without making a loss(normal profits) |
| maximisers | behave in traditional economic way and always try to make the best possible choice from all available alternatives |
| satisficers examine what? | only a limited set of alternatives and then choose the best option between them |
| businesses who adopt satisficing | use simple rules of thumb rather than complex pricing policies, instead of trying to find the optimum profit-maximising price and output rely on simpler cost plus approaches |
Created by:
jessharris
Popular Economics sets