1. A2 Microeconomics - Tutor2u
Satisficing & Profitability Factors

2. Alternative Objectives for Firms – Normal Profit Only
Costs &
Revenue
MC
AC
AR
MR
Normal Profit where AR = AC
Output

3. Alternative Objective: Revenue Maximisation
Costs &
Revenue
Revenue Max: MR=0
MC
AC
AR
Profit Max: MC=MR
MR
Output

4. Alternative Objective: Revenue Maximisation
Costs &
Revenue
Revenue Max: MR=0
MC
P1
AC
AR
Profit Max: MC=MR
MR
Output

5. Alternative Objective: Revenue Maximisation
Costs &
Revenue
Revenue Max: MR=0
MC
P1
AC
C1
AR
Profit Max: MC=MR
MR
Output

6. Alternative Objective: Revenue Maximisation
Cost &
Revenue
Revenue Max: MR=0
MC
P1
AC
C1
AR
Profit Max: MC=MR
MR
Output

7. Motivations for Revenue Maximisation rather than Profit Max
Protecting Market Position
Business survival
Managerial Objectives
Breaking into a new Market

8. What is Satisficing? Why do many businesses satisfice?
Price
and
Cost
MC
AC
AR
Profit Max: MC=MR
MR
Output

9. What is Satisficing? Why do many businesses satisfice?
Price
and
Cost
MC
P1
AC
AR
Profit Max: MC=MR
Q1
MR
Output

10. What is Satisficing? Why do many businesses satisfice?
Price
and
Cost
Possible satisficing price
MC
P1
AC
P2
AR
Q1
Q2
MR
Output

11. What is Satisficing? Why do many businesses satisfice?
Price
and
Cost
Possible satisficing price
MC
P1
AC
P2
C2
AR
Q1
Q2
MR
Output

12. What is Satisficing? Why do many businesses satisfice?
Price
and
Cost
Possible satisficing price
MC
P1
AC
P2
C2
AR
Q1
Q2
MR
Output

13. Evaluating the Importance of Profit – Stagecoach Group Plc
Largest UK bus operator by revenue and fleet
The Group has around 20% of the UK Bus market excluding London, it has 14% of the London bus transport market
One of the UK’s biggest train operators, including 49% stake in Virgin Trains
Annual revenues of £2.8bn, carrying around 2.5 million passengers daily in the UK
Main rivals are Go-Ahead Group, First Group and National Express

14. Evaluating the Importance of Profit – Stagecoach Plc
Why are
profits
important
for a
business
such as
Stagecoach
plc?
1 It generates finance for investment in new capital
2 Creates finance for advertising and expansion
3 It attracts new investors into the business
4 It creates rewards for employees and
shareholders

15. Factors Affecting Profitability of Stagecoach plc
Internal Cost / Revenue factors
Cost of
Fuel
Cost of
labour
Internal
to the
business
Productivity
Cost of
capital

16. Factors Affecting Profitability of Stagecoach plc
Internal Cost / Revenue factors
External Cost / Revenue factors
Cost of
Fuel
Demand for
coach/bus
travel
Cost of
labour
Internal
to the
business
Productivity
Cost of
capital
Substitutes
available
External
factors
Legal
Costs
Competitor
Actions

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