Satisficing & Profitability Factors

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Satisficing & Profitability Factors

  1. 1. A2 Microeconomics - Tutor2u Satisficing & Profitability Factors
  2. 2. Alternative Objectives for Firms – Normal Profit Only Costs & Revenue MC AC AR MR Normal Profit where AR = AC Output
  3. 3. Alternative Objective: Revenue Maximisation Costs & Revenue Revenue Max: MR=0 MC AC AR Profit Max: MC=MR MR Output
  4. 4. Alternative Objective: Revenue Maximisation Costs & Revenue Revenue Max: MR=0 MC P1 AC AR Profit Max: MC=MR MR Output
  5. 5. Alternative Objective: Revenue Maximisation Costs & Revenue Revenue Max: MR=0 MC P1 AC C1 AR Profit Max: MC=MR MR Output
  6. 6. Alternative Objective: Revenue Maximisation Cost & Revenue Revenue Max: MR=0 MC P1 AC C1 AR Profit Max: MC=MR MR Output
  7. 7. Motivations for Revenue Maximisation rather than Profit Max Protecting Market Position Business survival Managerial Objectives Breaking into a new Market
  8. 8. What is Satisficing? Why do many businesses satisfice? Price and Cost MC AC AR Profit Max: MC=MR MR Output
  9. 9. What is Satisficing? Why do many businesses satisfice? Price and Cost MC P1 AC AR Profit Max: MC=MR Q1 MR Output
  10. 10. What is Satisficing? Why do many businesses satisfice? Price and Cost Possible satisficing price MC P1 AC P2 AR Q1 Q2 MR Output
  11. 11. What is Satisficing? Why do many businesses satisfice? Price and Cost Possible satisficing price MC P1 AC P2 C2 AR Q1 Q2 MR Output
  12. 12. What is Satisficing? Why do many businesses satisfice? Price and Cost Possible satisficing price MC P1 AC P2 C2 AR Q1 Q2 MR Output
  13. 13. Evaluating the Importance of Profit – Stagecoach Group Plc Largest UK bus operator by revenue and fleet The Group has around 20% of the UK Bus market excluding London, it has 14% of the London bus transport market One of the UK’s biggest train operators, including 49% stake in Virgin Trains Annual revenues of £2.8bn, carrying around 2.5 million passengers daily in the UK Main rivals are Go-Ahead Group, First Group and National Express
  14. 14. Evaluating the Importance of Profit – Stagecoach Plc Why are profits important for a business such as Stagecoach plc? 1 It generates finance for investment in new capital 2 Creates finance for advertising and expansion 3 It attracts new investors into the business 4 It creates rewards for employees and shareholders
  15. 15. Factors Affecting Profitability of Stagecoach plc Internal Cost / Revenue factors Cost of Fuel Cost of labour Internal to the business Productivity Cost of capital
  16. 16. Factors Affecting Profitability of Stagecoach plc Internal Cost / Revenue factors External Cost / Revenue factors Cost of Fuel Demand for coach/bus travel Cost of labour Internal to the business Productivity Cost of capital Substitutes available External factors Legal Costs Competitor Actions
  17. 17. Get help from fellow students, teachers and tutor2u on Twitter: #econ3 @tutor2u_econ

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