The Objective of Firms - Chapter 2

HideShow resource information
View mindmap
  • 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

Comments

No comments have yet been made

Similar Economics resources:

See all Economics resources »See all The company, revenue and costs resources »