3.2.1 Business Objectives (Edexcel)

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