Chapter 2

Objectives of a Business Firm, Decision Rules and the Process of Optimization

After studying this chapter, you should be able to understand:

  • In traditional economic theory, the firm’s objective is to maximize the profits.
  • In modern economic theory, there are a variety of objectives before a firm.
  • For profit maximization, marginal cost (MC) should equal marginal revenue (MR) and MR should be falling while the MC is rising.
  • A firm may pursue many goals simultaneously with the primary goal being that of maximization of profits.
  • The problem occurs when the interest of the manager may be at variance from that of the stockholder.
  • By keeping employees and consumers happy, the firm nowadays has to fulfill the social responsibilities.
  • Optimization ...

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