a) Objectives

• state the three business objectives

• profit maximisation

• revenue maximisation

• sales maximisation

• state how firms maximise their profit

• producing output at the level where MC = MR

• state what producing output at the level where

  • MC = MR

  • MC < MR

  • MC > MR

• means for profit extraction

• no more profit can be extracted

• additional profit can be extracted

• firm is making a marginal loss

• state how firms maximise their revenue

• state how firms maximise their sales

• producing output at the level where MR = 0

• producing output at the level where AC = AR

• state why some firms maximise their revenue/sales instead of their profit

• principal-agent problem

• to increase market share

• to increase output → economies of scale

• lower price → eliminate competition in the short-run