Goals of the Firm (HSC SSCE Economics): Flashcards

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Goals of the Firm
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Main objective of most business firms

Profit maximisation

Formula for profit

extProfit=extTotalRevenue−extTotalCosts ext{Profit} = ext{Total Revenue} - ext{Total Costs}

Profit motive definition

Process by which business seeks to maximise profit

Directors' legal duty to shareholders

Serve shareholder interests

Agency problem

Managers' interests diverge from shareholders' interests

Growth maximisation focus

Expanding firm's assets over immediate profitability

Satisficing behaviour

Pursuing satisfactory level in all goals, not maximising one

What managers prioritise for personal rewards

Increasing sales volume/market share

Satisficing reason: avoiding regulation

Prevents government intervention

Formula for total revenue

extOutputsoldimesextPrice ext{Output sold} imes ext{Price}

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