T5 - Obj of firms Flashcards
What are some firm obj
Profit max
Product diff
Market diversificaation
LR EoS
Enhance consumer service
Survivall
growtj
Sales Max
Inc market share
Explain a perfect competion demand graph
D = AR - MR = P
Why in perfect comp does D = AR = MR = P
As price is the only thing that affects cosnumer demand
What is divorce of owner ship and control
When owners do not make descisions
Happens when busiensses grow
What is the principal agent problem
Where the agent has different interests than the princial, leadign to a conflcit of interest
who is the principal
shareholders
who are the agents
managers
what do shareholders want
strong returns in forms of divends and rising share prices
what do managers want
power, bonuses, promotions, presitge and status
how to deal with p a problem
align incetives
regular meatings
increase transparency
regular reports
methods to monitor agents
performance related pay
things managers my aim to achieve that shareholders arent bothered about
Product diff
Market diversificaation
LR EoS
Enhance consumer service
Survivall
growtj
Sales Max
willfirms price below or above mc = mr
yes if there sole objective isnt profit maxamisation and isnetad is consumer welfare
what firms may price lower than mc = mr
gov run industries
what is profit satsifcicing
when firms sacrifcie profit to satsify as many key stakehodlers as possiblr
what is the point of sales max
ar = ac
