Differing Objectives And Policies of Firms (Copy)

7.8 Differing Objectives and Policies of Firms

Goal: Maximise difference between total revenue (TR) and total cost (TC).
Profit Maximisation Condition: MC = MR.
Ensures resources are allocated where marginal benefit = marginal cost.

Objective	Definition	Reason for Pursuit
Survival	Focus on staying in business (common in new/start-up firms or recessions).	Maintain market presence despite low/negative profits.
Profit Satisficing	Earning enough profit to satisfy stakeholders while pursuing other goals.	Avoid risk, keep shareholders and employees happy.
Sales Maximisation	Maximise quantity sold without making a loss.	Increase market share, achieve economies of scale.
Revenue Maximisation	Maximise TR (MR = 0).	Achieve dominance, boost brand recognition.

Definition: Charging different prices to different consumers for the same good/service, not justified by cost differences.

Types:

First Degree: Each consumer charged max they are willing to pay (perfect discrimination).
Second Degree: Price varies by quantity consumed or product version (e.g., bulk discounts).
Third Degree: Different prices to distinct consumer groups based on PED (e.g., student discounts).

Conditions for Effectiveness:

Consequences:

Group	Effect
Producer	Higher profits, better capacity utilisation.
Consumer	Some pay more, some pay less, possible increased access for low-income groups.
Society	Potential efficiency gains if output increases, but can also lead to welfare transfer to firms.

Policy	Definition	Purpose
Limit Pricing	Setting price low enough to deter entry but still earn profit.	Maintain market power.
Predatory Pricing	Setting price below cost to drive competitors out.	Eliminate competition, raise prices later.
Price Leadership	One firm sets price, others follow.	Avoid price wars, maintain stability.

Normal Downward-Sloping Demand Curve:

Kinked Demand Curve (Oligopoly):

Table – PED & Revenue Relationship: