Professional Documents
Culture Documents
Alternatives Theories For Firm
Alternatives Theories For Firm
FIRM
OVERVIEW
Managerial theories of the firm (non-profit maximizing
objective flowing from separation between ownership &
management)
There are several models, but mainly concentrating on:
Baumol’s constrained sales maximization model
Extension of model
The firm’s objective is the maximization of long-run sales
revenue
Firms may use the profits in excess of the required minimum to
influence the demand conditions through marketing investment
and product development.
Outward shift in demand curve – sales increase for any
given price level
Assuming that any expenditure on advertising etc. increases
sales, long run sales maximization requires that all profit in
excess of the minimum be deployed in affecting demand
Then, long run sales maximization always leads to the profit
constraint being operative
EXTENSION OF CONSTRAINED SALES
MAXIMIZATION MODEL (BAUMOL)
Which point will be chosen under four ∏ constraints
Sales, Cost, Profit
Total cost
∏4
∏3
∏2
∏1
Profit curve
Sales curve