Objectives Of A Business Firm

Submitted By sylvia6666
Words: 589
Pages: 3

A business firm is an organisation that uses entrepreneurial skills to combine the factors of production to produce goods and services. An industry consists of those firms involved in making a similar range of items that usually compete with each other.

Production decisions:
What to produce? (Depends on skills and experience of the business operator, consumer demand, specific business opportunities and amount of capital required to start business).
How much to produce? (Based on level of consumer demand and ability to convert that demand into sales of items).
How to produce? (Depends on the relative efficiency of the four factors of productions).
What business contributes to the economy?
Generate a higher rate of economic growth.
Reduce the incidence of unemployment.
Contribute to regional development.
Growth in individual businesses also increases an economy’s productive capacity over time (i.e. an outward shift in the production possibility frontier).
Goals of the firm:
1) Maximising profits – main objective. (profit = total revenue – total costs of production)
2) Meeting shareholder expectations
3) Increasing market share
4) Maximising growth (of firm’s assets)
Satisficing behaviour is the idea that firms will attempt to pursue a satisfactory level in all goals (profit maximisation, sales maximisation etc.) rather than maximising any single goal.
To achieve maximum profit, the firm must combine resources at the lowest cost. Increasing productivity and efficiency will further reduce costs. Productivity refers to how much the economy can produce with a given quantity of resources, per unit of time.
Benefits of increased productivity for an economy:
Less wastage of our scarce resources
Lower production costs and higher profits for the business firm
A lower inflation rate (firms do not have to raise prices of the goods, low production costs)
Higher incomes (labour more productive, can pay better)
Improved international competitiveness of our industries
Increased profits can be achieved through specialisation, where the factors of production are used more intensively to complete a narrow range of tasks in the production process.

Division of labour (specialisation of labour)
Businesses break down their production process into sub-processes, avoiding the time and effort of moving from one process to another.
Assembly-line approach to car industry.
Location of industry (specialisation of natural resources)
Many business that produce similar g