THEORIES OF THE FIRM Difficulties in Maximising Profit Alternative Aims Alternative Maximising Theor

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THEORIES OF THE FIRMDifficulties in
Maximising ProfitAlternative AimsAlternative
Maximising TheoriesMultiple AimsBehavioural
Theories of the Firm
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Difficulties in Maximising profit1. Lack
of InformationConcept of Opportunity Cost2. The
Nature of Demand and Supply3. Changing Time
period
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2. Alternative
AimsTraditional theory of the firm assumes that
owners of the firm that make price and output
decisions - the question is whether the owners do
infact make the decisions.
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2. Alternative Aimes..Alternative
theories of the firm tend to assume that large
firms are profit satisficers - Managers strive
hard for a minimum target level of profit, but
are less interested in profits above this level.
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3. ALTERNATIVE MAXIMISING THEORIES
Replacing Profit maximising by profit constraint
1.Long Run Profit MaximisationComplex planning
and calculations
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3. Alternative Theories.2. Managerial
Utility MaximisationWilliamson - factors
related to managers utilitySalary, Security,
DominanceProfessional Excellence
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Importance of Discretionary
InvestmentSales Revenue MaximisationBaumol -
The success of the managers may be judged
according to the level of the firms sales - this
will tend to involve more advertising than profit
maximisation.
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4. Multiple AimsSatisficing and the
Setting of Targets5. Behavioural Theories of
the FirmThese theories are based on how firms
actually behave- do not lay down rules of how to
achieve different aims, but rather examine what
these aims are.
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5. BehaviouralSetting of Targets -
production, sales, profit, stock holding
etc.Organisational slack - conservative
aspirations