Key Diagrams - Four Business Objectives in One Diagram

In this revision video we walk through and show four different business objectives in one diagram using cost and revenue curve analysis.

The objectives that a business pursues impacts on the prices they charge in one or more markets. Typically, the aim of profit maximisation (MC=MR) leads to higher prices than if a firm aims to maximise revenue (MR = zero) or goes for sales max (AR=AC). There is no unique profit satisficing price and output.

Varying objectives have implications for economic welfare. Consider for example how consumer surplus changes as a firm’s pricing strategies change over time.

These diagrams assume a single-price firm but in reality, most firms engage in one or more forms of price discrimination – they are multi-product businesses operating across a range of markets and selling products at different prices to different groups of consumers. Please revise price discrimination for your economics exams!