Summary
Summary Edexcel Theme 3: Business objectives
- Institution
- PEARSON (PEARSON)
- Book
- Economics
Everything you need to know for 3.2 Business objectives. Useful for other exam boards too.
[Show more]
Connected book
Book Title:
Author(s):
- Edition:
- ISBN:
- Edition:
Seller
Follow
Content preview
3.2 Business ObjectivesWhat motivates a firm in its actions depends on who controls the decision-making process
Owners/shareholders
Small business – owner is manager of the business greater control
When there is a large number of shareholders - control can become obscured
Directors and managers
Principal-agent problem / divorce between ownership and control
Only way for owners to influence decision making is by sacking directors/managers at the Annual
General Meeting (AGM)
Shareholders can also sell shares forcing the share price down – more vulnerable to a takeover bid
If there is a takeover – directors and managers may lose job – pressure on them to do well
Workers (trade union)
can exert pressure on matters such as wages (therefore costs), health and safety at work, location of
premises
workers demand higher wages increase costs lower profit margins
to reduce the principal-agent problem bonuses related to profitability to incentivize workers –
more in line with the owners’ goal of profit max
The state
legislation on taxation, environment, consumer protection, health and safety at work, employment
practices, solvency
Consumer
In a free market, consumers cast their spending votes amongst companies – indicate what they value
- $1 = 1 vote
** Consumer sovereignty – the power of consumers to allocate resources according to their own
preferences through spending decisions
Companies that are not responsive to consumers’ needs go out of business consumers control
company
BUT: in practice, firms manipulate consumers by advertising – not that powerless
Consumers, through organisations e.g. the Consumers’ Association can pressurize companies to
change policies (less effective)
Pressure Groups
E.g. Greenpeace, Friends of the Earth – environmental pressure groups
Attempt to influence others to advance a particular cause/viewpoint
Protest outside shops – scare off customers
Have the power to change company policies e.g. force companies to abandon projects/modify work
practices to be more environmentally friendly
Short-run Profit Maximisation
Neo-classical economists assume that the interests of owners/shareholders are the most important –
assumption of rationality means shareholders are motivated by maximizing their dividend to maximise their
profits from the company only goal is profit maximization
Neo-classical economics assumes that it is short-run profits that firms maximise
marginal cost = marginal revenue (MC=MR)
(When the difference between total revenue and total cost is the greatest)
Marginal cost: the addition to total cost of one extra unit of output
Marginal revenue: the increase in total revenue resulting from an extra unit of sales
Marginal profit = MR – MC when MR = MC, MP = 0
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller jess24k. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £7.29. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
49768 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy revision notes and other study material for 14 years now