What this lesson teaches
I can describe other goals a firm may chase: more revenue, enough profit (satisficing) or a bigger market share.
Syllabus 9570, 2.2.1(b). Objectives of Firms: Firms may choose to pursue alternative objectives such as revenue maximisation, profit satisficing and market share dominance
I can judge how a firm's strategy affects efficiency, consumer welfare and other firms.
Syllabus 9570, 2.2.3(c). Firms' Decisions and Strategies: Impact of firms' decisions and strategies on:; efficiency (allocative, productive and dynamic efficiency); consumer welfare (consumer choice, product quality and consumer surplus); other firms (cost, revenue and profit)
Make a guess
A firm labels its packaging "eco-friendly". What does this prove about its effect on the environment?
- Nothing on its own; the real effect has to be measured.
- That it causes less harm than rival packaging.
- That it costs more, so the firm earns less profit.
Show the answer
Nothing on its own; the real effect has to be measured.
A label is a claim. Whether harm falls depends on how the product is made, used and thrown away.
Firms increasingly weigh their effects on workers, communities and the environment, as well as profit.
Some firms pursue social or environmental goals alongside profit, for example by cutting waste or paying fair wages.
They may do this because of their values, because customers prefer it, because of regulation, or to protect their reputation and reduce long-run risks.
A claim of being green or socially responsible does not prove a benefit. Ask what actually changes, who is affected and what the evidence shows.
There can be trade-offs: a greener process may cost more, which may mean higher prices or lower profit.
- Motives
- Values, customers, regulation, reputation.
- Test
- What changes, for whom, and what is the evidence?
Worked example: Do reusable containers deliver?
A food packaging firm plans a reusable container service. It forecasts less waste, but the containers must be collected and cleaned, and the return rate is unknown.
- If most containers are returned, waste falls a lot.
- If few are returned, the extra transport and cleaning may do more harm than good.
- Customers may find returning containers inconvenient.
- A trial to measure the return rate is needed before claiming a net benefit.
Watch out for this
Any product labelled green reduces environmental harm.
The real effect depends on how the product is used and made. It must be measured, not assumed.
Check your understanding
Why might a profit-seeking firm adopt environmentally friendly practices?
- Green practices lower its costs whatever they involve, so profit rises at once.
- Customers prefer them, which protects the firm's reputation and long-run profit.
- Such firms have given up profit as an aim and put the environment first.
Show the answer
Customers prefer them, which protects the firm's reputation and long-run profit.
Right. Social and environmental goals can support profit over time.