The main objectives of firms are: Profit maximisation Sales maximisation Increased market share/market dominance Social/environmental concerns Profit satisficing Co-operatives Business Objectives of firmsWatch this video on YouTube Sometimes there is an overlap of objectives. For example, seeking to increase market share, may lead to lower profits in the short-term, but enable profit maximisation in the …
Readers Question: Could you give a summary of Keynesian and Classical views? Summary Classical economics emphasises the fact that free markets lead to an efficient outcome and are self-regulating. In macroeconomics, classical economics assumes the long run aggregate supply curve is inelastic; therefore any deviation from full employment will only be temporary. The Classical model …
Subsidies involve the government paying part of the cost to the firm; this reduces the price of the good and should encourage more consumption. A subsidy shifts the supply curve to the right and can be justified for goods which offer benefits to the rest of society. What is the justification for subsidising goods with …
Economies of scale occur when increasing output leads to lower long-run average costs. It means that as firms increase in size, they become more efficient. Diagram of economies of scale Increasing output from Q1 to Q2, we see a decrease in long-run average costs from P1 to P2. Economies of scale are important because they …
Externalities occur when producing or consuming a good cause an impact on third parties not directly related to the transaction. Externalities can either be positive or negative. They can also occur from production or consumption. For example, just driving into a city centre, will cause external costs of more pollution and congestion to those living …
Readers Question: Discuss the impact of a decrease in government spending? If the UK government cut government spending, it would have a significant impact on both aggregate demand (AD) and the supply side of the economy – depending on which areas of public spending were cut. Firstly, government spending (G) is a component of Aggregate …
Perfect competition is a market structure where many firms offer a homogeneous product. Because there is freedom of entry and exit and perfect information, firms will make normal profits and prices will be kept low by competitive pressures. Features of perfect competition Many firms. Freedom of entry and exit; this will require low sunk costs. …
A multinational company is a global operation with the production and distribution of its goods located in numerous countries. Typically multinationals have different stages of the supply chain located in different countries. This enables the firm to specialise production in countries where it has a comparative advantage. The firm gains many benefits of being global …