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Economics

Study Notes

Behavioural Theories of the Firm

Level:
A Level, IB
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Behavioural theories of the firm consider alternatives to profit maximisation as a business objective. This study note explains.

3 reasons why a business may adopt objectives other than profit maximisation

  1. Desire the gain and protect market share
  2. Social / ethical / environmental objectives
  3. Need to generate cash-flow during economic recession

2 consequences of this for different stakeholders

  1. Possible fall in the share price and lower dividends in the short term for shareholders
  2. Consumers may pay lower prices if a firm moves away from profit maximisation

1 example of a business adopting such objectives

  1. Pubs having to focus on growing revenue and maintaining cash-flow when adopting to changing consumer spending patterns and preferences (e.g. competing with low-priced alcohol available from the supermarkets

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