Business Objectives

What Business Objectives covers

Covers what a firm is actually trying to do: profit, revenue and sales maximisation and satisficing, where each sits on a cost and revenue diagram, and why managers may not pursue what owners want.

The 2 subtopics

Each one has its own page.

• Profit, revenue and sales maximisation, and satisficingRecall questions on the output rule for each objective, the reasons a firm adopts one over another, and the principal-agent problem behind satisficing.Open →
• Business objectives on a cost and revenue diagramRecall questions on locating each objective on a diagram, and on how output and price compare between them.Open →

What you need to know

Answer each one before you reveal it.

Take Business Objectives further

The same content, four other ways.

Commonly confused

Pairs that lose marks when they are blurred together.

• Revenue maximisation vs Sales maximisation

  Revenue maximisation: producing at the output where marginal revenue is zero. Sales maximisation: producing the largest output at which the firm still covers its average costs.

• Profit maximisation vs Satisficing

  Profit maximisation: producing where marginal cost equals marginal revenue. Satisficing: producing at whatever level keeps every stakeholder sufficiently content.

• The principal vs The agent

  The principal: the party who owns the firm and on whose behalf decisions are supposed to be taken. The agent: the party engaged to act for the owner, who may pursue their own aims instead.

Questions from this topic

Each one with the model answer underneath.

1. 1

   State the condition that defines the profit-maximising level of output for a firm.

   Model answer

   Profit maximisation occurs where marginal cost equals marginal revenue (MC = MR).

2. 2

   Explain why a firm maximises profit when MC = MR.

   Model answer

   At this output, the additional cost of producing one more unit exactly equals the additional revenue from selling it; producing more would add more to costs than revenue, and producing less would forgo profitable units.

3. 3

   What would happen to a firm's profit if it produced beyond the MC = MR output level?

   Model answer

   Profit would fall because the additional cost of each extra unit would exceed the additional revenue gained from selling it.

4. 4

   Why does a revenue-maximising firm not stop at the profit-maximising output?

   Model answer

   Because at the profit-maximising output MR is still positive, so expanding output further still increases total revenue until MR reaches zero.

5. 5

   Explain why total revenue is maximised when MR = 0.

   Model answer

   At this output, total revenue is at its maximum because any additional unit sold would reduce total revenue (MR would become negative).

6. 6

   If a firm is making supernormal profit, can it be sales maximising?

   Model answer

   No, a sales-maximising firm produces where AC = AR, earning only normal profit with zero supernormal profit.

What is inside Levo

Six ways to work the same material.

Business Objectives revision questions

What does Business Objectives cover in Edexcel A-Level Economics A?

2 subtopics: profit, revenue and sales maximisation, and satisficing and business objectives on a cost and revenue diagram. Each one has its own page with questions and model answers.

How is Business Objectives organised?

By the Edexcel 9EC0 specification, subtopic by subtopic, so it matches the order you are taught it in.