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11 Cards in this Set
- Front
- Back
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What is the assumed objective of firms?
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Profit Maximisation
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What is the profit maximising rule?
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Marginal Cost = Marginal Revenue
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What assumptions are made when considering the profit maximising objective?
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-That owners are in control of managers
-That there is sufficient knowledge to calculate Marginal costs and Marginal revenue. |
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What are the alternative theories of business objectives?
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-Managerial objectives
-Stakeholder objectives -environmental/ethical/cooperatives |
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What may Managerial objectives be?
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To maximise sales, growth, career prospects, promotion prospects.
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Who are the stakeholders? What may their objectives be?
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-Shareholders, employees, customers, managers, suppliers, investors, creditors, the community...
-to maximise: dividends, wages/(flexible) working hours, value for money, sales, profit, welfare... |
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how can a business satisfy everyones objectives?
When is this likely to happen? |
-they must satisfice - achieve a satisfactory outcome for everyone rather than the best possible.
-likely for firms under imperfect competition. |
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What are Ltds and what are their benefits?
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LTDs have limited liability and there is generally little seperation between ownership and control.
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What are PLCs and what are their pros/cons?
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A PLC is a public limited company which has separation between ownership and control (shareholders appoint directors who appoint managers) - managers can pursue their own objectives (enron, worldcom)
There is limited liability, less expensive to finance (shares sold), can employ specialist staff. |
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How mat we limit non-profit maximising behavior?
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Regular meetings (AGM), stock market pressures (inefficient firms vunerable to takeovers), performance related pay, share schemes (shares linked to profit)
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What defines the short run and the long run?
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Short run - at least one factor of production is fixed, output can be changed by adding extra variable units to the fixed factors
Long run - All factors can be changed, output may be changed by increasing the scale of factors fixed in the short run. |
