1. 3.14 Operational Strategies: location
Objectives

2. Candidates should be able to:
Syllabus
Candidates should be able to:
Define different legal structures (sole trader, partnership, Ltd and Plc)
Define objectives
Describe a range of different objectives such as profit maximisation, revenue maximisation, sales maximisation and satisficing
Analyse why firms may have different objectives
Use diagrams and formulae to illustrate the different business objectives: profit maximisation, revenue maximisation and sales maximisation

3. Legal structures – research
You have five minutes to complete the following research:
What are the advantages and disadvantages of the following legal structures for a business:
Sole trader
Partnership
Private limited company
Public limited company

4. Sole trader (unincorporated): advantages and drawbacks

5. Partnership (unincorporated): advantages and drawbacks

6. Private limited company (Ltd): advantages and drawbacks
3.14 Operational Strategies: location
Private limited company (Ltd): advantages and drawbacks

7. Public limited company (plc): advantages and drawbacks
3.14 Operational Strategies: location
Public limited company (plc): advantages and drawbacks

8. Objectives should be SMART, what does this mean?
What is an objective?
Objectives should be SMART, what does this mean?

9. Examples of objectives
Firms may have different objectives such as profit, revenue or sales maximisation or even satisficing. What do these mean?
Profit maximisation:
Revenue maximisation:
Sales maximisation:

10. E.g. why might a firm aiming to maximise profit upset stakeholders?
Satisficing
Satisficing is when the managers of a business try to achieve a satisfactory performance across a range of indicators and not to maximise any. This is more likely to keep _______ the firm’s stakeholders happy.
E.g. why might a firm aiming to maximise profit upset stakeholders?
If they can make a satisfactory profit, rather than a ______________ profit, the owners of the firm and the stakeholders will be happy and the managers will keep their jobs.

11. Other objectives
Apart from profit, revenue or sales objectives businesses can also aim for:

12. Objectives may be short-term as well as long-term.
Short term objectives
Objectives may be short-term as well as long-term.
Short-term objectives, which are more tactical than strategic, might include:
Penetrating a market
Eliminating a competitor
Dumping unwanted products
State owned companies are often thought to be ‘good’ because they are not profit maximisers. It is argued that they act 'in the public interest', avoid externalities, and minimise wasteful activities. However, this may not actually be true in real life!

13. Examples of objectives: profit maximisation
Firms may have different objectives such as profit, revenue or sales maximisation or even satisficing.
What does profit maximisation mean? When does it occur?
Profit maximisation: aim for
Profit = __________ so try to maximise this.
It occurs when marginal _______ = marginal _____

14. Profit maximising diagrams: constant price and falling price
Under the diagrams draw a new graph showing MC & MR

15. Examples of objectives again: revenue maximisation
Firms may have different objectives such as revenue maximisation. What does revenue maximisation mean?
Revenue maximisation: highest turnover (income) in total, so the firm is LESS concerned about profits
Revenue maximisation will occur when MR =
Revenue maximisation can be encouraged by raising ______ and ___________ the price

16. Revenue maximisation diagram: falling price
Plot a diagram showing revenue maximisation
What type of profit does your diagram show?

17. Revenue maximisation diagram: constant price
Why can’t a firm revenue maximise with a constant price?

18. Reasons for revenue maximisation

19. Examples of objectives again: sales maximisation
Firms may have different objectives such as sales maximisation. What does sales maximisation mean?
Sales maximisation:
This occurs when firms lower the price until AR =
Why do you know this formula already?
Which type of organisations may choose to operate at this level of output?
Profit making firms may use sales maximisation e.g. with predatory pricing where, so long as costs are covered, a firm may reduce price to ______ rivals out of the market.

20. Sales maximising diagram (AR = AC): constant price and falling price
3.14 Operational Strategies: location
Sales maximising diagram (AR = AC): constant price and falling price
Plot a diagram showing sales maximisation
What type of profit does your diagram show?

21. Sales and profit maximising: falling prices
3.14 Operational Strategies: location
Sales and profit maximising: falling prices
Plot a diagram showing sales maximisation occurring at the same quantity as profit maximising

22. Sales maximising explanation
3.14 Operational Strategies: location
Sales maximising explanation
Why might managers wish to maximise sales volume rather than profit?

23. Profit, revenue and sales maximising diagram
Plot a diagram showing a downward sloping linear demand curve (remember D = AR).
Add MC, AC and MR (remember MR is twice as steep as AR)
Mark on three distinct quantities showing: profit maximisation (MR = MC), revenue maximisation (MR = 0) and sales maximisation AR = AC
Note what happens to the price and quantity.

24. Who decides the objectives for a firm?
Three main participants in setting objectives: