Costs, revenues and profits

Objectives of firms
Revenue maximastiom
• when MR = 0
• Increased outputs when maximises pro ts

E arm
pen

i output

• Maximised when PED = 1

Firms engage when;

• improve cash ow
• Bonuses bases on revenues
• Investors
• Decreased tax (tax on pro ts)

Sale maximisation
• break even output
• Enough pro t to justify staying in the market
• When AC = AR
• increase level of output without operating at a loss
• TR = TC or AR = AC

Egarm

Ac

price

output
• Pro ts normal 0 (normal pro t = 0 pro t)
• R = TC

Firms engage when ;

• increased market share (achieve economies of scale)
• Establish a foot hold in the market
• Bonuses are based on sakes
• Eliminates a competitor

Profit ‘satisfying’ behaviour

• making enough pro t to satisfy different demands of stakeholders
• E.g. John Lewis
• Corporate social responsibility - buying ethical environmentally friending but =
increased costs

Pro t ‘s atisfying’ - when managers ensure a rm makes enough/ suf cient pro t to
satisfy the needs of shareholders/ owners for pro ts and achieve the other objectives,
but pro t still remains important