AS Micro Multiple Choice: Business Objectives

Profits are maximised when the marginal revenue from selling extra output equals the marginal cost of supplying those additional units of output. (MC=MR).

A number of alternative business objectives are often chosen by businesses

1. Increasing market share in a given industry
2. Achieving a satisfactory rate of profit sufficient for shareholders but giving freedom to managers to pursue other objectives
3. Growth maximisation i.e. achieving sufficient profit (normal profit where price = average cost) but with growth of sales and output given the higher importance
4. Sales revenue maximisation i.e. choosing a price and output combination that maximises total revenue (TR = price per unit x output)

AS micro multiple choice questions often use the following distractors:

• Achievement of economies of scale (lower unit costs in the long run do help to increase profit)
• Maximisation of consumer satisfaction (a vague objective)
• Achievement of an efficient allocation of resources (high profits are often at the expense of economic efficiency)