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Economics IGCSEPDF 72
118 pagesrevision 46932
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○ A: This influx of new capital can be used to fund investment, growth, or
expansion.
○
○
Profit is the primary reward for entrepreneurship and risk-taking.
Without sufficient profit, a firm cannot survive in the long run, nor can it
attract necessary investment (capital) for expansion and innovation. Profit is
therefore essential for sustainability.
○
For
and those in competitive markets,
may be the primary
short-term goal.
○
(increasing market share) may be the focus, even if it requires
temporarily accepting lower profits (e.g., lowering prices to gain customers) to
achieve long-run economies of scale.
○ An: Owners of large public companies (Plc) may focus on non-financial
objectives such as social responsibility or maintaining a good public image,
especially if they are not the day-to-day managers.
○ While other objectives exist, profit maximisation remains the dominant
for most commercial firms, as it underpins all others. A firm must
be profitable to survive, grow, and pursue social goals. Alternative objectives are
often pursued only as a means to achieve greater profit in the future.
● K: Internal Economies of Scale (EoS) are the fall in a firm's average costs as its scale of
output increases.
● A: Technical EoS allow the firm to use large, specialist machinery or production lines,
which lowers the cost per unit.
● An: This reduction in average costs directly leads to an increase in the firm's profit
margin if the price remains constant.
● An: The firm can use the lower costs to either reinvest for future growth or reduce the
selling price of its product.
● E: By lowering prices, the firm becomes more competitive against rivals, allowing it to
increase its market share both domestically and internationally.
EVALUATION
long-run goal
P1: Arguments for Profit Maximisation
K:
An:
P2: Arguments against Profit Maximisation (Alternative Objectives)
K:
newfirms
survival
An: Growth
Q2: Benefits of Internal Economies of Scale (6 Marks)
Q3: Discussion of Profit Maximisation as the Objective (8 Marks)
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3.7 Firms' costs, revenue and objectives