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'Revenue maximisation is a more realistic business objective than profit maximisation for many businesses.' To what extent do you agree with this statement? Refer to an industry of your choice in your answer. - Edexcel - A-Level Economics A - Question 8 - 2017 - Paper 1
Question 8
'Revenue maximisation is a more realistic business objective than profit maximisation for many businesses.' To what extent do you agree with this statement? Refer to... show full transcript
Worked Solution & Example Answer:'Revenue maximisation is a more realistic business objective than profit maximisation for many businesses.' To what extent do you agree with this statement? Refer to an industry of your choice in your answer. - Edexcel - A-Level Economics A - Question 8 - 2017 - Paper 1
Step 1
Explanation of Revenue Maximisation
Answer
Revenue maximisation refers to achieving the highest possible output where marginal revenue (MR) equals zero. This scenario often occurs when a firm reaches its peak market share, focusing on increasing sales volume rather than profit margins. For example, within retail sectors like supermarkets, revenue maximisation can help in gaining a larger market share, even if it means operating at lower profit margins.
Step 2
Evaluation of Profit Maximisation as an Objective
Answer
Profit maximisation is traditionally viewed as the main goal for many businesses, particularly in smaller firms where there is no separation of ownership from management. In industries like hairdressing, owners often balance several competing goals, making revenue maximisation a more relevant target for stable growth and continuity. Profit maximisation could lead to neglecting other critical aspects like customer service and brand loyalty.
Step 3
Industry Example: Supermarkets
Answer
In the supermarket industry, revenue maximisation is essential as it allows larger chains to leverage economies of scale, undercut competitors, and establish greater market control. This method also helps in negotiating better terms with suppliers due to higher sales volumes, which can create more reliable income streams even when profits are tempered. Therefore, the extent to which revenue maximisation serves as a realistic objective can often hold more merit in this industry context.
Step 4
Conclusion
Answer
In conclusion, while profit maximisation is quintessential, revenue maximisation emerges as a more pragmatic objective for many businesses, especially in competitive industries. This approach invites stability and facilitates long-term growth, as businesses that focus on revenue are likely to build a stronger market presence and address a variety of stakeholder needs better than those solely fixated on short-term profits.