Think of a firm as a garden 🌱.
It must survive (water the plants), contribute to society (share beautiful flowers), make a profit (harvest the fruit), and grow (plant new seeds). These four objectives guide every decision a firm makes.
Survival means the firm can keep operating in the long run.
It must cover its fixed and variable costs.
📌 Key point: If average total cost ATC is above average revenue AR, the firm will eventually shut down.
Analogy: A plant needs water (variable cost) and sunlight (fixed cost). If it doesn’t get enough, it wilts.
Mathematically: \$\text{Survival condition: } AR \ge ATC\$
Firms can also aim to improve the overall well‑being of society.
This includes providing essential goods, creating jobs, and reducing environmental harm.
Exam tip: Remember that social welfare objectives can coexist with profit maximisation. Look for phrases like “social responsibility” or “public goods” in questions.
The classic goal: make the most money.
Profit π is the difference between revenue R and total cost C.
\$\pi = R - C\$
Example: A bakery sells cupcakes at $3 each.
If it costs \$1.50 to make a cupcake, profit per cupcake is \$1.50.
To maximise profit, the bakery should produce where marginal cost (MC) equals marginal revenue (MR).
Exam tip: If a question asks for the profit‑maximising quantity, look for the condition MR = MC. If it also asks whether the firm will make a profit, compare price with ATC.
Firms often want to expand: more output, new markets, or new products.
Growth can be organic (internal) or acquisitive (buying another firm).
Analogy: A tree that spreads its roots to new soil.
Growth is driven by investment in capital and innovation.
Exam tip: Growth objectives may appear in questions about market structure changes or long‑run supply curves. Look for terms like “scale economies” or “investment in R&D”.
| Objective | Key Focus | Example |
|---|---|---|
| Survival | Cover costs (ATC ≤ AR) | A small café staying open during a slow season. |
| Social Welfare | Benefit to society (jobs, environment) | A solar‑panel company providing green jobs. |
| Profit Maximisation | Maximise π = R – C | A smartphone firm setting price where MR = MC. |
| Growth | Expand output or markets | A fast‑food chain opening new outlets overseas. |
Final Exam Tip:
• Identify the objective in the question.
• Use the appropriate condition (e.g., MR = MC for profit maximisation).
• Check long‑run viability (price > ATC).
• Remember that firms can pursue more than one objective simultaneously.