Business objectives

Written by: Umar Bostan
Updated on21 November 2025
Profit Maximisation (PM)
The point at which a firm achieves the greatest possible difference between Total Revenue (TR) and Total Cost (TC).
Formulaic Condition: Marginal Cost (MC) = Marginal Revenue (MR).
If MR>MC, producing one more unit adds more to revenue than cost, increasing profit.
If MR<MC, producing one more unit adds more to cost than revenue, reducing profit.
Reasons for Pursuing PM:
Shareholder Returns: It maximizes dividends and increases the underlying share price, maximizing the wealth of the owners/shareholders.
Source of Finance: Retained profits are the cheapest and most reliable source of finance for future investment, expansion, and research and development (R&D).
Security: Higher profits provide a buffer against economic downturns and reduce the risk of hostile takeovers.
Neoclassical Assumption: Traditional economic theory assumes PM is the rational, short-run objective for all firms.
Revenue Maximisation (RM)
The point at which a firm achieves the highest possible Total Revenue (TR) from its sales.
Formulaic Condition: Marginal Revenue (MR) = 0.
Reasons for Pursuing RM:
Managerial Utility (Baumol's Theory): Managers' salaries, bonuses, and prestige are often linked more closely to the size and growth of the firm's revenue/sales than to its profit.
Market Power: Aiming for higher revenue often requires lower prices (compared to PM), which can deter new entrants and drive smaller competitors out of the market.
Cash Flow: Maximizing revenue helps to improve cash flow, which is crucial for internal operations and short-term liquidity.
Valuation: Firms (especially tech start-ups) often prioritize revenue growth to secure a higher market valuation or attract investors, even if profits are low.
Sales Maximisation (Volume)
The objective of selling the largest possible volume of output without making an economic loss.
Formulaic Condition: Average Revenue (AR) = Average Cost (AC) (i.e., the firm earns normal profit or breaks even).
Reasons for Pursuing Sales Maximisation:
Market Share: It is an aggressive short-term strategy to gain the largest possible market share, which can lead to higher long-run profits and market dominance.
Limit Pricing: The lower price associated with sales maximisation can be used as a form of limit pricing to keep out potential competitors.
Economies of Scale (EoS): Achieving maximum sales volume allows the firm to reach the minimum efficient scale and exploit all available EoS, leading to lower costs in the long run.
Clearing Stock: Used as a short-term goal to quickly clear excess inventory or stock.
Satisficing
A behavioral objective where firms aim to achieve a satisfactory or acceptable level of profit to keep shareholders content, while simultaneously pursuing other, non-profit goals.
Reasons for Pursuing Satisficing:
Divorce of Ownership from Control (Principal-Agent Problem): Owners (principals) want PM, but hired managers (agents) want utility (high salary, security, perks). Managers pursue just enough profit to keep shareholders quiet and prevent a takeover, then focus on their own objectives (e.g., job satisfaction, CSR, ethical goals).
Information Constraints: In the real world, firms rarely have the perfect information needed to calculate the exact MC and MR curves, making PM impractical. Satisficing is a more realistic and pragmatic goal.
Conflict Resolution: It allows the firm to balance the demands of multiple stakeholders (shareholders, workers, customers, the community) who may conflict with strict profit maximisation.
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