A Level Economics AQA Practice Exam

What does profit satisficing imply for a business?

1. Making high profits to expand operations

2. Covering only the variable costs

3. Generating just enough profit to meet owner demands

4. Maximizing revenue under competitive conditions

The correct answer is: Generating just enough profit to meet owner demands

Profit satisficing refers to a strategy adopted by some businesses where they aim to generate just enough profit to satisfy the needs and expectations of the owners or stakeholders, rather than striving to maximize profits to the fullest extent. This approach recognizes that while profit is important, there are other factors at play that may include maintaining a certain level of work-life balance for owners, ethical considerations, employment stability, or social responsibilities. By focusing on generating sufficient profit to meet the expectations of owners, a business may prioritize operational stability or employee well-being over aggressive growth strategies. This can lead to a more sustainable business model that takes into account various stakeholder interests rather than just purely financial metrics. In contrast, the other options suggest different intentions: striving for high profits indicates an aim for aggressive expansion, covering only variable costs involves the basic operational cost management without prioritizing profit, and maximizing revenue implies a focus on sales performance above all else, which does not align with the concept of satisficing. Thus, the notion of profit satisficing effectively encapsulates the idea of meeting essential profit margins rather than pursuing the maximum potential earnings.