Business objectives

Calculate the change in total supernormal profit if the restaurant changes its objective from revenue maximisation to profit maximisation. You are advised to show your working.

Refer to the previous diagram. There is a reduction in the demand for pizza.

Ceteris paribus, which one of the following will happen to the restaurant’s average revenue and marginal revenue as a result of this change?

Peloton is a firm which makes exercise bikes. Peloton’s objective is to prioritise selling fitness services rather than to achieve short-term profit maximisation.

(Source adapted from: https://www.forbes.com/sites/shelleykohan/2022/01/26/ peloton-prioritizes-access-and-acquisition-over-profits/?sh=13d8ee474f40)

Draw a cost and revenue diagram to illustrate the different business objectives: profit maximisation and revenue maximisation.

If Peloton changes its objective to sales maximisation, then without making a loss, it operates at an output where:

With reference to Figure 1, calculate the three-firm concentration ratio for branded coffee shop chains.

With reference to Figure 2 and your understanding of price elasticity, examine two factors that may cause significant changes in the international price of coffee beans.

Profit maximisation is assumed to be the business objective of most firms. With reference to Extract A, assess whether this is the case for coffee shop owners.

Using a cost and revenue diagram, discuss the likely impact of ‘rising costs’ for coffee shops on their profitability (Extract A, line 2).

With reference to the information provided, discuss whether the coffee shop market is contestable.

Patrick Street Productions produces musicals. Its latest production is ‘It’s a Wonderful Life’ and the total cost of this production is $200 000. The ticket price is $40. The theatre has a capacity of 300 seats. The company aims for revenue maximisation. If this is achieved, revenue from ticket sales will cover 30% of total costs. Charitable donations contribute 12.5% towards total cost and a government subsidy ensures the production covers all of its costs.

(Source adapted from: https://www.cbc.ca/news/canada/british-columbia/a-bit-of-a-desperate-time-as-costs-rise-professional-theatre-companies-survive-rather-than-thrive-1.5489733)

Calculate the total revenue from ticket sales for ‘It’s a Wonderful Life’, assuming it is shown only five times, all at full capacity. You are advised to show your working.

Calculate the value of the government subsidy necessary for this production to cover all of its costs.

Which one of the following conditions is necessary for revenue maximisation to occur?

Emily owns and operates a nail ink salon. The diagram shows the cost and revenue curves for treatments at her nail ink salon. Initially, Emily sets her price to maximise profits.

Costs, Revenue

Calculate the change in total supernormal profit if Emily changes her objective from profit maximisation to revenue maximisation. You are advised to show your working.

Emily now decides to change her objective from revenue maximisation to sales maximisation. This change will lead to:

8 ‘Revenue maximisation is a more realistic business objective than profit maximisation for many businesses.’

To what extent do you agree with this statement? Refer to an industry of your choice in your answer.

Write your answer here: