Differing objectives and policies of firms
| English | Chinese | Pinyin |
|---|---|---|
| objective | 目标 | mù biāo |
| satisficing | 满意化 | mǎn yì huà |
| principal-agent problem | 委托代理问题 | wěi tuō dài lǐ wèn tí |
| divorce of ownership and control | 所有权与控制权分离 | suǒ yǒu quán yǔ kòng zhì quán fēn lí |
| sales maximisers | 销售最大化者 | xiāo shòu zuì dà huà zhě |
Not every firm just chases profit
- Textbooks assume firms maximise profit. In reality some chase market share, some keep shareholders just happy enough, and managers may pursue their own goals.
- A firm's objective 目标 shapes the price it sets and the output it chooses.
Firm objective lab
Classify real firm decisions by the objective they reveal.
Different objectives
The usual assumption is profit maximisation (MC = MR) — but firms may pursue other goals
A profit-maximising firm produces where:
Profit max is MR = MC; sales/revenue max is MR = 0.
Match each objective to its rule or aim.
Different objectives imply different output rules.
The principal-agent problem 委托代理问题
- Owners (principals) want profit; managers (agents) who run the firm may prefer size, salary or an easy life.
- This divorce of ownership and control 所有权与控制权分离 means firms don't always maximise profit.
The principal-agent problem arises because:
The divorce of ownership and control lets managers pursue their own objectives.
The principal-agent problem is also called the divorce of ownership and ______.
Owners own; managers control — their goals can differ.
Why it matters
- Revenue maximisers (MR = 0) and sales/volume maximisers (AR = AC) both produce more, at a lower price, than profit maximisers — sales maximisers go furthest, right up to break-even.
- Satisficers settle for "good enough" profit to fund other goals (growth, ethics, staff welfare).
Profit maximising (MR = MC) is just one assumption. Real objectives — sales, market share, survival, social goals — lead to different prices and outputs. State the objective before predicting behaviour.
A sales-maximising firm tends to produce more output than a profit-maximising one.
Sales max (MR = 0) is at a higher output (and lower price) than profit max (MR = MC).
You've got it
- objectives: profit max (MR = MC), revenue max (MR = 0), sales/volume max (AR = AC, the most output while still breaking even), satisficing, social/ethical goals
- the principal-agent problem: managers (agents) may not pursue owners' (principals') profit
- the objective changes the firm's price and output — so identify it first