Buscar
Estás en modo de exploración. debe iniciar sesión para usar MEMORY

   Inicia sesión para empezar

level: Level 1 of 5. Managerial theories of the firm

Questions and Answers List

level questions: Level 1 of 5. Managerial theories of the firm

QuestionAnswer
What is Baumol’s sale revenue maximization model?Maximizing organizations sales revenue subject to a minimum profit constraint.
What is Marri’s growth maximization modelManagers tend to strive for growth rather than profit maximization. For a given product range, growth is constrained: • Managerial constraint: rapid growth through diversification may lead to declining profitability. • Financial constraint: growth of capital requires financing, and it is limited: - Borrowing: increase debt-equity ratio and risk - Issue new share capital: acceptable present and future profitability - Retained profit: trade-off with dividends • Growth of demand: firm’s chosen growth rate of demand and its profitability • Maximum growth of capital: firm’s rate of profit and the maximum rate at which capital grows • Point A and B profit and growth maximization respectively
What is Williamson’s theory of managerial utility maximization?The managerial utility function: U=f(S,M,π_D). Meaning, managers derive personal utility from things other than profits or sales: - Staff (S). Likes to have power over many employees (empire building) - Perks (M). Large office, company car, dinners, etc. - Discretionary profit (π_D): the higher this profit, the higher the payout to owners, the more secure the manager’s job is. The manager faces a constraint: π_D=π(S)-(M+T)-π_0 where T = tax and π_0= owners’ minimum acceptable profit. We can see the model below, characterized by: - Diminishing returns: π(S) is first increasing but eventually declines. - Profit maximization: staff expenditure S1 and discretionary profit π_(D_1 ) - Utility maximization: staff expenditure S2 and discretionary profit π_(D_2 )