Micro Theorists Flashcards
What is the theorist for sales maximisation
Robin Marris which states managers aim to maximise the growth of their company above any other objective.
Increased market share - increased growth
Creative destruction
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
Why did Schumpeter argue that perfect competition was undesirable in contrast to monopolies
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)
Which theorists argues Oligopolies may not profit maximise and be interdependent
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.
Properties of the Baumol Model
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.
Adam smith invisible hand
Adam smith states that supply and demand is determined by market forces which is known as the invisible hand
Karl Marx capitalism
Karl marx was against capitalism in free markets because he said they exploited labour and so provision by the government will prevent capitalism
Freidrick Hayek
He stated that the market should be a free market but the government should act as a safety net to prevent externalities and provision of demerit goods etc
Joan Robinson
she came out with the idea that all competitive markets have some degree of monopoly power - she started the monopolistic competition revolution along with edward chamblin
Creative destruction
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
Rational decision making
People make decisions to maximise their own utility
Pareto Efficiency
This states that in a perfectly competitive market, this means that they are maximising efficiency to the point that nothing can be changed without making someone else worse off
What is the theory for revenue maximisation and the principle agent problem?
William Balmoul said that managers are most interested in their level of revenue since this is what their salary depends on
- Also said to increase the prestige of the business
What is the theorist for sales maximisation?
Robin Marris which states managers aim to maximise the growth of their company above any other objective.
Increased market share - increased growth
What is oliver williamsons theory?
Managers make decisions based upon their own satisfaction
