The Myth of the Perfect Consumer | IB Economics Business Objectives (HL)

So, What Do Firms Really Want?

Let’s talk about business objectives. The real ones. Not the companies showing a “We care about our customers” slogan painted across the side of a delivery van - but let’s focus on what businesses actually aim for when no one’s watching.

The Classic: Profit Maximisation

Traditionally, economists believed firms were like cartoonish gold-hoarding dragons - hell-bent on profit, profit, profit. And in fairness, it’s a solid theory. Profit maximisation happens when the difference between total revenue and total cost is as wide as the Grand Canyon. Mathematically, it’s that lovely, neat point where MR = MC - Marginal Revenue equals Marginal Cost.

Why?

Because if MR is greater than MC, each extra unit sold adds more money than it costs to make - so, this tells us to keep producing!

If MC is greater than MR? You’re losing money on each extra unit - time to hit the brakes.

At MR = MC, you’re balancing perfectly. No extra gains, no extra losses. You’re at peak profitability - like a business version of zen.

Real-world snapshot:

Take Apple, for instance. They don’t just randomly decide to produce 74 million iPhones in a quarter because it feels right. They’ve modelled their output so that, ideally, the cost of making one more phone is roughly equal to the extra revenue it’ll bring in. They maximise profit by carefully dancing along that MR = MC line. (With maybe a touch of "creativity" from their pricing team.)

But is Profit the Only Goal?

Nope. Businesses are run by people, not robots (yet), and people have all sorts of motivations. Enter: behavioural economics, where the human side of business goals kicks in.

Here’s what else firms might be after:

1. Corporate Social Responsibility (CSR)

This is where a business says: “You know what? Let’s not just make money - let’s do good while we’re at it.”

CSR means things like reducing carbon emissions, improving workers’ rights, giving back to the community. And guess what? It can pay off long term. A business that’s respected tends to attract loyal customers, talented employees, and investor love.

Example?

Patagonia makes outdoor gear and donates time, services, and 1% of its sales to environmental causes. They’re also profitable. Showing that doing the right thing can be good business strategy.

2. Growth

Bigger is often seen as better. Companies aim to grow sales, expand their markets, and reduce average costs through economies of scale.

Think of Tesla expanding production in Germany, Texas, and China. The goal isn’t just current profit - it’s future dominance (and, maybe, at this rate, interplanetary expansion). But remember, one thing is what we plan, another very different thing is how things turn out (Hint at Chinese competition here).

3. Market Share

Sometimes in the short-term it’s about grabbing a bigger slice of the pie - even if you make a bit less money.

Amazon spent years reinvesting its profits to dominate market share. The logic? Once you're the biggest player, you can start to rake in the profits, shape the rules of the game, and elbow out smaller competitors.

The formula to calculate market share, by the way:

(Firm’s total sales revenue ÷ Industry’s total sales revenue) × 100

Try it with some fast fashion brands - you’ll be surprised how much of the market is controlled by just a few players.

4. Satisficing

This is the anti-perfectionist approach. Coined by Herbert Simon, it’s about settling for “good enough.” Not every business is chasing record profits every quarter. Some just want to cover costs, pay staff, and have enough left over to keep going without burning out.

Imagine a local coffee shop run by a couple who’d rather have a relaxed lifestyle than double their hours for marginally more profit. That’s satisficing in action.

So… What Should You Take from All This?

Businesses don’t always behave the way your IB Economics course textbook might suggest. Profit maximisation is a goal - often an important one - but it’s not the only game in town. Real firms juggle multiple goals, balancing image, ethics, efficiency, and yes, earnings.

And just like people, businesses evolve. A start-up might chase market share now, dream of profits later. A huge corporation might shift from aggressive growth to CSR to keep investors and regulators onside.

Something to take with you after reading this entry:

Do you think a business can truly do good while still maximising profits? Or is CSR just clever branding in disguise?

Stay well