Revenue Maximisation

Firms may wish to maximise their sales revenue, to do this they will continue to produce until the marginal revenue is equal to zero. This is because while the marginal revenue is positive, total revenue will increase when output rises. On the diagram below the firm's output will be Q_RM at a price of P_RM, this compares to the profit maximising output and price of Q_PM and P_PM respectively.

The revenue maximisation point of output will occur where elasticity is equal to one (unitary), this is shown on the diagram overleaf.

Sales Maximisation

A firm may wish to maximise its sales in order to gain as large a share of the market as possible. This goal would have to be pursued subject to the constraint of at least normal economic profit. The firm will lower its price until the point where AC=AR, giving an output of Qs.

Managerial Theories

Many companies have a divorce of ownership and control, meaning the owners and those who control the firm (managers) are different groups with different objectives. The owners will more than likely wish to pursue a profit maximising objective, however the managers will more than likely have their own agenda. Managers may wish to have an easy life or maximise their prestige, the pursuit of these goals will lead to increasing costs and therefore profits will fall. This behaviour is described as profit satisficing, the managers make enough profit to keep the shareholders happy, while enjoying as many perks as possible.

Behavioural theories

Different groups within the firm will have different objectives, e.g., the sale manager's objectives will conflict with the research and development manager's. The objective of the firm will depend upon the power balance of the competing groups.

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Objectives of the firm
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Maximising profits
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