2. Economies of scale
3. Non-profit motives
4) Behavioral Theories
-Sees the firm as an organization with various groups, workers, managers, shareholders, customers, etc., each of which has its own goals.
Firms which are satisfied in achieving such limited objectives are said to “satisfice” rather than “maximize”.
“satisfice” – is a neologism. This word is the result of combining the verbs “to satisfy” and “to sacrifice”. On the one hand, multiple goals are satisfied up to a certain acceptable level. On the other hand, there are some sacrifices, as the goals are satisfied not at the maximum level. Satisficng occurs where a firm has 2 or more aims, and targets are set in such a way that they are too low for individual aims to be achieved simultaneously and yet are sufficient to satisfy the interested parties.
Top-managers’ aim is to set goals which resolve the conflict between opposing groups. This will involve compromise (minimum targets in the key areas, satisficing rather than maximizing):
Techniques used for compromise:
1. Time constraint – restricting bargaining time pressure for compromise between the groups
2. “Agreed” limits – Budget limits are introduced, thus limiting the area of conflict.
3. Structure – structuring the firm in such a way that a group discretion is limited.
4. Money payment
5. Organizational slack – is used when spare capacities are left in order to enable managers to respond more easily to changed circunstances.
6. Sequential problem-solving – Top management may concentrate on one goal achieved in order to lower other demands at any given time.
Sequential problem-solving. Top management may concentrate on one goal achieved in order to lower other demands at any given time. For example, managers could use an increase in wages to explain why more equipment could not be purchased.
Contingency Theory
-Suggests that the optimal solutions to organizational problems are derived from matching the internal structure and processes of the firm with its external environment.
However, the external environment is constantly changing, so that the optimum strategy for a firm will change as the prevailing environment influences change.
11. Producer’s equilibrium in the inputs market
The price of labor is the wage, shown by w, and the quantity demanded is the number of labor-hours employed, shown by N. The demand for labor is the pMP, the price of output times the marginal productivity of labor in units of output. The equilibrium price (wage) and the equilibrium quantity demanded and supplied (employment) are at the point where the supply and demand curves intersect
Each additional factor or input (e.g. labor, capital, land) of production produces additional product of output. Formula for Marginal product:
The value of the marginal product for any input is:
VMPinput=p*MPinput
where p stands for the price of the output, as before. In general, we may think of the VMP as the marginal productivity of the input in money terms. The rule for maximization of profits, for each input, is to increase the use of the input until
VMPinput=priceinput
Rule of cost minimization in long run:
MP(l)/P(l) = MPc/Pc , where MP –Marginal product of additional input; P – Price for this additional input.
Rule of profit maximization:
MRP(l)/P(l) = MRPc/ Pc = 1, MRP – Marginal Revenue Product of additional factor (=input); P – price of the additional factor, either labor or capital. MRP = MR*MP, where MR- marginal revenue from each MP.