Objectives of Firms | Economics for GCSE/IGCSE - Year 11 PDF Download

Objectives of Firms

• The goals of a firm represent the purpose for its existence or the intended priorities of its owners. 
• These objectives commonly encompass profit maximization, expansion, sustainability, and promoting social welfare.

Profit Maximisation

• The primary objective for most firms is rational: to maximize profits.
• Profit = Total Revenue (TR) - Total Costs (TC)
• Achieving profit maximization involves either boosting sales revenue or curbing costs.
  • Firms regularly assess their costs to identify opportunities for reduction, aiming to maximize profit.

Growth

• Some companies prioritize growth as a key business objective.
• When assessing growth, firms compare various metrics such as the number of employees, market share, profits, and market capitalization.
• Companies with a growth objective often concentrate on boosting sales revenue and expanding their market share.
• In order to increase output and take advantage of economies of scale, firms also aim to maximize revenue.
• A growing firm is generally more stable and less likely to face failure.

Survival

• In the short term, new firms often prioritize business survival as their primary goal.
• Roughly 25% of new firms face failure within their initial year of operation.
• Established firms may transition to focusing on profit maximization once they are stable.

Social Welfare

• An increasing number of firms are now launched with a core emphasis on social welfare.
• These objectives often involve initiatives related to climate action, poverty alleviation, or addressing inequality.
• While profitability remains essential for these socially conscious firms, they are willing to accept lower profits as long as they fulfill their social goals.