Managerial Economics

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 ...