Explain Other Objectives the Firm May Have Other Than Profit Maximisation

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Profit maximisation occurs when a firm produces at the point where marginal cost equal marginal revenue (MC=MR). This is the point of profit maximisation as any unit produced after this point will have a greater marginal cost than marginal revenue therefore the marginal revenue being gained from the extra unit will decrease total revenue rather than increase it, thus causing profits to decrease. A reason why a firm may want to profit maximise is that it keeps shareholder happy as they receive a greater share of dividends and also if a firm has profits they can reinvest these profits into research and development (dynamic efficiency). There are many different objectives a firm could have other than profit maximisation. The knowledge of a firm finding out where marginal costs equal marginal revenue is very difficult so some firms may not be able to profit maximise as they do not have the correct knowledge required to do so. Instead firms may decide to do cost plus pricing, this occurs when a firm sets its price equal to the average costs at a normal capacity output and then they add a certain percentage mark up. So the level of the price is the level of average cost plus a certain percentage which will be the profit gained. They may decide to do this as it may stop attracting other firms into the market as they are not producing large amounts of profits. Another different objective a firm could have could be to revenue maximise. Revenue maximisation occurs when marginal revenue equals zero (MR=0). At this point revenue is being maximised as every unit produced until marginal revenue equal 0 is adding a certain amount of extra revenue to the total revenue. After the point MR=0 every extra unit produced has a negative value of marginal revenue therefore each unit produced after MR=0 will decrease total revenue and if a firms total revenue decrease their profits may
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