1. 1.4.2 The objectives of firms AS: 3.1.4 Competitive and concentrated markets Y1: 4.1.5 Perfect competition, imperfectly competitive markets and monopoly In pairs write a list of possible business objectives. Select one big business and research its corporate objectives. Why do firms have more than one objective?

2. 1.4.2 T HE OBJECTIVES OF FIRMS  Profit is an important objective of most firms  Firms may also have other objectives such as survival, growth and increasing their market share  You should be aware that firms may have a variety of objectives but a detailed knowledge of these objectives is not required. However, you should appreciate that the objectives of a firm will affect its behaviour What are your objectives? Do these vary in the short, medium and long term?

3. O BJECTIVES  Objectives are the long term goals which determine the guiding principles of a business  They translate into targets that a business aims to achieve in a specific period of time  Objectives will be broken down into short and medium term aims  Performance should regularly be monitored against objectives and objectives reviewed  Firms have different objectives influenced by a number of internal and external factors  In business it is generally accepted that objectives should be SMART What does SMART stand for? S M A R T

4.  Profit maximisation  Firms will seek to attain the highest level of profit available in their production of goods and services  Profit satisficing  A level of profit below profit maximisation that satisfies the needs of the owners or managers of an organisation e.g. working less hours to enjoy more leisure time or behaving ethically Profit = revenue – cost. Profit maximisation occurs at that level of output where the difference between total revenue (TR) and total cost (TC) is at its highest. Total revenue is: Price x quantity sold. Total cost is: Fixed cost plus variable cost. Fixed costs are costs that do not vary with output e.g. rent. Variable costs are costs that do vary with output e.g. raw materials. O BJECTIVES OF F IRMS Do you maximise the time spent on your studies or are you satisfied with a certain level of work?

5.  Sales maximisation  Some firms will seek to maximise sales i.e. by volume, possibly to gain market share  This will increase the size of the firm and is likely to be an objective of senior management as larger businesses tend to pay higher wages than smaller, but more profitable, ones  Revenue maximisation  Some firms will seek to maximise sales revenue  This will occur at the point where marginal revenue = 0. T HE O BJECTIVES OF F IRMS What are Morrison’s objectives in the short and medium term? What are James Murdoch’s objectives?

6. P ROFIT SATISFICING  Profit satisficing occurs where the firm is not operating at its profit maximising level of output  At this point the firm is not producing to maximise profits but is satisfied with a level of output that will allow it to meet other objectives  The firm might set a level of profit that meets the requirements of stakeholders such as shareholders, employees and consumers. For example, the firm might ensure a high level of corporate social responsibility (CSR) that will improve its ethical and environmental practices but increase costs leading to lower profits  Profit satisficing often occurs because of the divorce of ownership and control  Shareholders (the owners of a business) wish to maximise profits  Managers/directors (who control the business) might be self- interested and maximise their own personal benefits e.g. increase job enjoyment, increase their own pay and fringe benefits etc.

7. O THER O BJECTIVES  There are a variety of other objectives that a firm will wish to achieve  These will depend on the type of business and include:  Government businesses looking to supply a service  Worker co-operatives look to benefit their members  Producer co-operatives might look to gain economies of scale with smaller firms joining together What are the dangers of having a pure profit motive?

8. F IRMS MAY ALSO HAVE OTHER OBJECTIVES SUCH AS SURVIVAL, GROWTH AND INCREASING THEIR MARKET SHARE  Survival  The ability of a business to continue to exist  Need enough money to pay expenses  Growth  Organically, through opening own stores  Takeover/merger Are there any businesses in your local area that have failed to survive? What do you think were the main causes of the closure?

9. F IRMS MAY ALSO HAVE OTHER OBJECTIVES SUCH AS SURVIVAL, GROWTH AND INCREASING THEIR MARKET SHARE  Market Share  Increasing the percentage of the total market that one particular brand or business owns How much do you know? Who are the leading 4 supermarkets in the UK by sales? What percentage do you think they each control? What supermarkets make up the rest of the market? What share of the market is owned by the combined discount stores Lidl, Aldi and Netto?