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Alternative objectives of the firm
 

Alternative objectives of the firm

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    Alternative objectives of the firm Alternative objectives of the firm Presentation Transcript

    • Alternative Objectives of the Firm Pankaj Kumar
    • Theory of the firm
      • What is a firm
      • Objectives of a firm
      • Constraints of a firm
      • Fundamental concepts of Managerial Economics or fundamental principles used by a firm for profit maximization
      • Opportunity Cost Principle
      • Equi Marginal Principle
      • Marginal & Incremental Principle
      • Discounting Principle
      • Accounting & Economic Profit
    • Classification of Models
      • Optimizing or Maximising models
      • Profit-maximising model
      • Managerial Theories of the firm
      • Growth Maximisation Models
      • The Non-optimising or satisficing models
    • Managerial Theories of the Firm
      • Sales Revenue Maximising Model
      • Managerial Utility Model
      • Berle-Means-Galbraith Model of ‘Corporate Power Structure’
      • O.Williamson’s Model of ‘Managerial Discretion’
      • Growth Maximisation Model
    • Sales Revenue Maximising Model
      • Assumptions
      • Goal of the firm is sales maximisation subject to minimum profit constraint
      • Oligopolistic market
      • Advertisement is a major instrument of the firm as non-price competition
      • Production costs of independent of advertising
      • Price of the product is assumed to be constant to reduce price wars
    • Sales Revenue Maximising Model
      • Baumol describes in this model that an oligopolistic firm aims at maximizing their sales revenue.
      • The above is only after the profit constraint has been satisfied that profits become subordinate to sales in the firm’s hierarchy of goals.
    • Managerial Utility Model
      • Assumptions of Berle-Means-Galbraith Model of ‘Corporate Power Structure’
      • Traditional setup of organisation: shareholder hold the ultimate power
      • Modern setup of organisation: the ownership and managerial control generally happen to be in the hands of two separate sets of people – the shareholders and managerial team – rather than in the hands of only one set, as suggested by the traditional theory
    • Managerial Utility Model
      • Propositions of the Model
      • Profits rates are higher in owner-controlled firms than in manager-controlled firms
      • Professional corporate managers have no personl motivation to maximise profits
    • O.Williamson’s Model of ‘Managerial Discretion’
      • Assumptions
      • Market is non-perfectly competitive
      • Ownership of the firm and management of the firm are divorced from each other
      • A minimum profit constraint is imposed on the managers by the shareholders which cannot be ignored by the management.
    • Framework of Model
      • Profits are not the criteria for satisfaction for a manager but he has his own ‘utility functions’ i.e., a set of factors which give rise to managerial satisfaction
      • U = f (S, M, ID)
      • S is staff variable
      • M is the managerial emoluments
      • I is Investment expenditure