- Economics 24

10/2/26 Objective of Firms - 12/2/26 Objectives of Firms Pt 2

What does Traditional Economic Theory assume

It assumes that firms seek profit maximisation.

When does (supernormal) profit occur

When total revenue is greater than total costs (TR > TC)

When does sales / revenue maximisation occur —————————

When sales revenue is maximised. (When Marginal Revenue MR = 0)

List the 3 rationale of the sales maximisation objective

• Larger market share and dominance

• Long term greater profits opportunity

• Managers look reputable from increasing sales

Define shareholder / stockholder

One who owns shares of stock in a corporation or mutual fund.

What are the two main ways of owning a company

Private Cooperation (Ltd), and Public Limited Companies (PLC)

Define a Private Corporation(Ltd)

[OWN PRIVATELY] A private enterprise firm owned by a single person, or private partners (so NO public shareholders).

Give examples of Private Corporations

• Lidl

• Morley’s

Define a Public Limited Company(PLC)

[BE A SHAREHOLDER] A firm owned by a group of shareholders, whose shares can be traded on the (London) Stock Exchange.

Give examples of Public Limited Companies

• Tesco

• HSBC

Define growth max

Decision makers make the firm grow as fast as possible.

Define market share max

Maximum percentage share of the market a firm could capture.

Define ‘survival’

When firms need to ensure prices are competitive. This occurs in highly competitive firms.