Topic Videos

Key Diagrams - Four Business Objectives in One Diagram

Level:
A-Level, IB
Board:
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.

Key Diagrams - Four Business Objectives in One Diagram

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!

© 2002-2022 Tutor2u Limited. Company Reg no: 04489574. VAT reg no 816865400.