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Study Notes

3.2.1 Business Objectives (Edexcel)

Level:
A-Level
Board:
Edexcel

Last updated 19 Sept 2023

This Edexcel study note covers business objectives

a) Different Business Objectives and Reasons for Them:

  1. Profit Maximization:
    • Objective: To maximize profits, i.e., to earn the highest possible level of net income.
    • Reasons:
      • Provides a financial return to the owners/shareholders.
      • Attracts investors and capital.
      • Indicates efficient resource allocation and cost control.
      • Often a primary goal for profit-driven organizations.
  2. Revenue Maximization:
    • Objective: To maximize total revenue from the sale of goods or services.
    • Reasons:
      • Focuses on increasing market share and capturing a larger customer base.
      • May be used when a company wants to establish its presence in the market quickly.
      • Can lead to higher long-term profits if accompanied by cost control.
  3. Sales Maximization:
    • Objective: To maximize the number of units sold, regardless of profit.
    • Reasons:
      • Common in industries where competition is intense, and market share is crucial.
      • May be used to maintain a dominant market position.
      • Can be a strategic choice to deter new entrants.
  4. Satisficing:
    • Objective: To achieve a satisfactory level of profit or performance, rather than maximizing it.
    • Reasons:
      • May prioritize other goals, such as employee satisfaction, social responsibility, or long-term sustainability.
      • Reduces the pressure to continually push for higher profits.

b) Diagrams and Formulae to Illustrate Different Business Objectives:

  1. Profit Maximization:
    • Formula: Profit (π) = Total Revenue (TR) - Total Cost (TC)
    • Diagram: The profit maximization point occurs where the marginal cost (MC) equals the marginal revenue (MR). MC = MR.
  2. Revenue Maximization:
    • Formula: Total Revenue (TR) = Price (P) x Quantity Sold (Q)
    • Revenue is maximised when marginal revenue = zero
  3. Sales Maximization:
    • Formula: Sales (Q) = Market Demand (D) or a company's own production capacity.
    • Diagram: This objective focuses on increasing the quantity sold, so the company aims to produce or sell as much as possible within the limits of market demand or capacity.
    • Sales maximised when average revenue = average cost

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