Cambridge International as and a level Economics Ebook

Figure 7.24 
The relationship between average revenue, 
marginal revenue and total revenue
180
Cambridge International A Level Economics

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Survival in such circumstances becomes a priority in 
order to allow the fi rm to develop a revised strategy to 
stay in business.
Th
ere is, however, a limit to the time and to the scale 
of losses that can be tolerated. If a fi rm is not covering 
its variable costs, then closure would seem to be the 
only sensible outcome. If variable costs (but not total 
costs) are being recouped, then it is possible for the fi rm 
to continue in business a little longer so that it can try 
to map out a retrieval strategy. In the UK, for example, 
retailers of fashion clothes, electrical goods, books and 
music products have been badly aff ected by the growth 
of Internet sales. Not all have been able to implement a 
successful retrieval strategy.
Ethical objectives
In some respects satisfi cing can be viewed as an ethical 
objective for a fi rm to pursue as the pursuit of maximum 
profi t is not always in the best interests of society. Much 
wider is the notion of corporate social responsibility and 
why many fi rms now incorporate aspects in their mission 
statements.
An important consideration here is the growing 
number of cases where unscrupulous fi rms appear to put 
self-interest before the wider interest of others. Typical 
examples are:
■
the growing instances of serious damage to the natural 
environment caused by firms, resulting in pollution, the loss 
of renewable resources and damage to the natural habitat
■
the exploitation of child and adult labour, particularly 
in the production of clothing in developing 
economies
■
exposing workers to serious health risks in the production 
of toys and consumer goods
■
paying poor farmers in developing economies low prices for 
their produce.
It is within this context that a growing number of fi rms 
have stepped back from the endless pursuit of profi t and 
sought to have a more responsible attitude to how what 
they are selling is sourced and produced.
One of the earliest and best examples in the UK of an 
ethically focused fi rm is Th
e Body Shop, which has sought 
to bring sustainable products to its customers worldwide. 
It has also been at the forefront of supporting many 
environmental projects, animal welfare initiatives and 
educational programmes in developing economies. Other 
examples are banana exporters and coff ee, tea and cocoa 
manufacturers who only source from fair trade farmers 
and suppliers. In this way, producers receive a guaranteed 
price for what they produce, so avoiding the vagaries of 
the market.
However, deliberately cutting the price to reduce profi t might 
be a strategy to deter new entrants into the market. Th
is was 
referred to earlier as predatory pricing. If new entrants still 
appear, a price war may be a tactic to squeeze them out.