This revision presentation considers the variety of stakeholders impacted by business activity. How will a change in objectives, such as a move from profit maximisation to revenue maximisation have an effect on different stakeholders?
3. Examples of different stakeholders
Shareholders Managers Employees Suppliers
Customers Creditors The
government
Wider
community
4. Business
objectives
and
stakeholders
A change in objectives will lead to
different price and output
combinations
This will have an impact on
consumers and shareholders
And your evaluation can broaden
out to consider the possible impact
on suppliers, employees and the
wider community
10. Objective Shareholders Consumers Wider community
stakeholders
Profit
maximisation
(MC=MR)
Firm makes the highest
profit thus increasing
the returns for
shareholders
Higher prices and
lower output lead to a
lower level of
consumer surplus
Profits provide funds for
capital investment and
more tax revenue for the
government to spend
11. Objective Shareholders Consumers Wider community
stakeholders
Profit
maximisation
(MC=MR)
Firm makes the highest
profit thus increasing
the returns for
shareholders
Higher prices and
lower output lead to a
lower level of
consumer surplus
Profits provide funds for
capital investment and
more tax revenue for the
government to spend
Sales revenue
maximisation
(MR=zero)
Profits are lower than
with profit maximisation
so less is available for
shareholder dividends
Lower prices than with
profit maximisation –
so a gain in consumer
surplus
Likely to be nearer
allocative and productive
efficiency at lower price and
higher output - thus
community benefits
especially some lower
income groups
12. Objective Shareholders Consumers Wider community
stakeholders
Profit
maximisation
(MC=MR)
Firm makes the highest
profit thus increasing
the returns for
shareholders
Higher prices and
lower output lead to a
lower level of
consumer surplus
Profits provide funds for
capital investment and
more tax revenue for the
government to spend
Sales revenue
maximisation
(MR=zero)
Profits are lower than
with profit maximisation
so less is available for
shareholder dividends
Lower prices than with
profit maximisation –
so a gain in consumer
surplus
Likely to be nearer
allocative and productive
efficiency at lower price and
higher output - thus
community benefits
especially some lower
income groups
Sales
maximisation
(AC=AR)
Normal profit earned so
shareholders will
receive lower dividends.
Prices are much lower
than profit max, so
many customers
benefit.
AR=AC thus firm maximises
output which may benefit
employment at the firm less
profit for higher wages?
Anyone with a vested interest in the activities and the decisions taken by a business
There is a difference between stakeholders and shareholders – stakeholders don’t necessarily own a business, a customer for example may have a transactional relationship with a business
Stakeholders have different interests in the business
Customers have an interest in getting value for money and good quality customer service
Suppliers – selling input to a business – want prompt payment and reliable contracts
Wider society – impact of business for example on the environment, business compliance with laws, acting in a ethical manner