Theory Of The Firm-are Firms J

Part I of Essay
Firms are in business for a simple reason: To make money. Traditional economic theory suggests that firms make their decisions on supply and output on the basis of profit maximisation. However many Economists and managerial Scientists in our days question that the sole aim ....

Part II of Essay
.... most cases these managers will not own stock in the company which may lead to strongly differing goals of owners and managers. Since ownership gives a person a claim on the profit of the firm, the greater the firm's profit, the higher the owners’ income. Hence the owners goal will be profit maximisation. When managers’ salary stays unaffected by higher profits they may pursue other goals to raise their personal utility. This behaviour strikes the critical observer regularly when for example reading or watching the ....