Business economics (for firm) Essay Example | Topics and Well Written Essays - 1500 words

Business economics (for firm) - Essay Example The traditional theory of firm states that the same principles underlie each decision taken within a firm and that the decision is influenced by who takes it, thus the theory abstracts from the peculiarities of the persons taking the decisions and from the organizational structure in which they were. Therefore according to the traditional theory of firm whenever a firm manager or board of directors of the firm, then as far as the theory takes decisions is concerned that person is the firm for the purposes of that decision. According to devine1985 he reinstated the traditional theory of firm, he viewed participatory economy system as a process in which the value and interest of people in a process of decision making through negotiation and cooperation. Extra-firm firm is concerned with the implication of generalized participation outside the firm for the process and criteria that determine which of the entrepreneurial or innovation output of firms are successful. Baumol's sales revenue maximizing model. Williasm Baumol developed the sales maximizing model he argues that firms attempts to maximize the revenue obtained from sales with or without a profit constraint. This is motivated by managers in a firm belief that their salaries are related to the size of the firm. This approach was developed by cyert and March in 1963. ... with the implication of generalized participation outside the firm for the process and criteria that determine which of the entrepreneurial or innovation output of firms are successful. Question 3 Baumol's sales revenue maximizing model. Williasm Baumol developed the sales maximizing model he argues that firms attempts to maximize the revenue obtained from sales with or without a profit constraint. This is motivated by managers in a firm belief that their salaries are related to the size of the firm. The diagram below demonstrates a firm's total cost curve. Total revenue curve and the profit curve. Total revenue curve and the profit curve. Cost & Revenue Total Revenue At point 'P' where total cost curve intersect total revenue curve. The profit value is zero. Where TC = TR then profits are equal to zero. Managers of a firm may be interest in maximizing variables other than profits. The diagram below shows a firms attempts to maximize sales revenue subject to a minimum profit and a firm not subjected to a profit constrain. A firm producing at point Qo maximizes profit this is the point where the profit curve is at it maximum. A firm that has no profit constraint in its production will produce at pointy Q3. A firm with a minimum profit constraint will produce at point Q2, where the minimum profit line interest the profit curve. Section B Behavioural Approach of a Firm This approach was developed by cyert and March in 1963. It emphasizes on explaining how decisions are taken within a firm. This approach is an alternative of the -profit maximization theory. According to Baumol (1959), he suggests that managers would seek to maximize their own utility, managers interests are served by maximizing sales after achieving a