Micro Theorists

Question 1

What is the theorist for sales maximisation

Answer 1

Robin Marris which states managers aim to maximise the growth of their company above any other objective.
Increased market share - increased growth

Question 2

Creative destruction

Answer 2

This is the idea that when an innovative, efficient production or industry evolves, this leads to growth in the new sector etc but death to the old way - could structurally unemploy staff etc

Question 3

Why did Schumpeter argue that perfect competition was undesirable in contrast to monopolies

Answer 3

Schumpeter argued that perfect competition was undesirable due to lack of innovation
Monopolies have the inbuilt incentive to meet consumer needs due to Creative Destruction. If they don’t, they will lose market share (assumes is some level of contestability in this monopoly market)

Question 4

Which theorists argues Oligopolies may not profit maximise and be interdependent

Answer 4

William Baumol
* Only interdependence and watch each other on big decisions
* MR=0, total revenue is maximised
* Price * Q
* Firms revenue maximise (with a minimum profit constraint), with elasticity affecting pricing decisions
* Maximising revenue increases market share
* Higher sales often correlate with higher managerial salaries and market share, incentivizing managers to focus on revenue.

Question 5

Properties of the Baumol Model

Answer 5

Key properties of the Baumol model include:
1) Revenue maximization goals lead firms to lower prices, increasing sales volumes.
2) A minimum profit constraint is maintained to satisfy shareholders.
3) The long-run growth of the firm is prioritized over short-term profit gains.
4) Non-price competition is emphasized.