Key Diagrams - Four Business Objectives in One Diagram
- A-Level, IB
- AQA, Edexcel, OCR, IB, Eduqas, WJEC
Last updated 8 May 2022
In this revision video we walk through and show four different business objectives in one diagram using cost and revenue curve analysis.
The objectives that a business pursues impacts on the prices they charge in one or more markets. Typically, the aim of profit maximisation (MC=MR) leads to higher prices than if a firm aims to maximise revenue (MR = zero) or goes for sales max (AR=AC). There is no unique profit satisficing price and output.
Varying objectives have implications for economic welfare. Consider for example how consumer surplus changes as a firm’s pricing strategies change over time.
These diagrams assume a single-price firm but in reality, most firms engage in one or more forms of price discrimination – they are multi-product businesses operating across a range of markets and selling products at different prices to different groups of consumers. Please revise price discrimination for your economics exams!