25 Mark economics essay!

Evaluate the view that firms will always try to minimise their costs and maximise their revenues.

Firms have many objective that they wish to successfully acheive. Profit maximisation, i.e. where marginal costs equal mariginal revenue is one main objective. This is very similar when firms wish to minimise their costs and maximise their revenue. However this is mainly dependent on the size and the type of the firm in question. A small private firm with high competition will want to survive in the market so will work to minimise their costs and maximise their profits, which enables them to be more X - efficient - not incurring any unneccesary costs. They will also try to become more competitive to survive in a highly competitive market.

On the other hand, a larger public firm, which consists of many stakeholders whom each will have different objectives they will wish to achieve. The main labour arguably the most vital stakeholders, as they produce the goods or service will want better working conditions and higher wages. However in a large firm, employees can be easily dismissed and unnoticed so trade unions protect and act on behalf of the labour.

Another stakeholder, are the manages in a large firm, who control the day to day running of the business. They will have their own objectives, such as sales maximisation or creature comforts; objectives which will benefit them directly. The last stakeholder i will discuss are shareholders. Shareholders are present in a firm to inject capital into a firm in return for dividends from the profit. Shareholders can emerge from when a large company is nationalised from the private sector to the public. This may be due to the need for more money in order to fund for the company. Shareholders will want the firm to minimise their costs and maximise their profits and to produce on its PPF (production possibility frontier) in order to get larger dividends. If shareholders feel the firm or the managers are not fproducing efficiently or effectively they can take over the firm via a hostile takeover bid.

A large firm which faces small amounts of competition, will not actually need to minimise costs and maximise their revenue to survive in the market. This may result in consumer welfare is exploited to producer welfare and the firm incurs a net welfare loss as consumer surplus is shifted to producer surplus. the firm then starts to show signs on the undesirable economic characteristics of monopolistic competition, where there is producer sovereignty.

Every stakeholder in a large public firm will have different objectives. This may be due to a divorce in ownership, where communication of the firm's real objectives are dissipated. This was the case for Richard Branson's Virgin. Branson decided to make Virgin public, where shareholders had some control over the company, however, Branson felt the real objectives of the company were not being made a priority and a divorce of ownership soon occured. He soon privatised Virgin back to its orginal state. So large firms decide to satisfice in order to please all stakeholders and produce efficiently in order to survive and compete successfully.

Thus I believe, firms will not always try to minimise their costs and maximise their revenues as it is dependent on each firm, its size and type. In the short run, firms will wish to minimise their costs and be productively efficient in order to compete and survive in the market, however in the long run, when a firm is larger and holds more market share, it may wish to satisfice all of its stakeholders in order to achieve some equity among the firm.

Can anyone please offer any advice/criticism of the following essay; I'm really hoping to get an A in economics, but i'm not sure how my essay skills are.
Please give a mark out of 25 for this essay.

Thanks, Speel

Reply 1

Bill_Gates

1) Agency problem - clash between managers & owners (stakeholders)
2) You can say Revenue Maximisation is not the only goal. Firm can have other goals such as profit maximisation, filling a gap in the market, extending product lines etc
3) Differentiate between Long term & short term
4) greater evaluation maybe required?

Reply 2

name1404

Well, speaking from an AQA perspective:

- Having more flow in your answer - it is not clear what is your point as there is no signpost or modularity e.g. Firstly or having a point and then evaluating it
- Need to have more evaluations, after each point you make you must evaluate it at least once and then move on to your next paragraph, again starting it with However or this is limited to
- Your judgement is too short, it needs to have 2-3 (I say 3 - it worked for me and others) evaluations. It's great that you have started off with your answer + justified it. But then you must evaluate your answer and the alternative answers you have presented and then link back to the question to end it off
- Add diagrams - you mention all these efficiencies, costs and welfare without illustrating it - get those easy application and analysis marks from there
- Final thing, add more context, use the time you still have to find context for both micro and macro that you could use in essays, especially for those in section B

Good luck