The Objective of Firms - Chapter 2
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- Created on: 10-09-15 11:13
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- Chapter 2 - The Objective of Firms
- The Divorce of Ownership and Control
- The Agency Theory
- Shareholders and Directors have conflicting objectives
- Shareholders: profit maximisation, low costs
- Directors: salaries, job security, perks
- Satisficing
- Satisfactory profit but not maximum profit
- Sales maximisation
- Grow/sustain market share
- Ensure survival
- Discourage competitors
- Achieve bonuses
- Inability to profit maximise
- Complex companies - difficult to retrieve information on marginal revenues/cost
- Cost - Plus Pricing
- Price is equal to average cost plus a mark up (i.e. 25%)
- Profit maximisation
- MR = MC
- Mergers - External Growth
- Horizontal integration - 2 firms at the same stage of the production process combine
- Vertical integration - 2 firms at different stages in the production combine
- Conglomerate merger - 2 firms with no similarities combine
- Lateral - 2 firms that have similarities combine. They have some similarities
- The Divorce of Ownership and Control
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