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A Course in Microeconomic Theory$
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David M. Kreps

Print publication date: 2020

Print ISBN-13: 9780691202754

Published to Princeton Scholarship Online: May 2021

DOI: 10.23943/princeton/9780691202754.001.0001

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PRINTED FROM PRINCETON SCHOLARSHIP ONLINE (www.princeton.universitypressscholarship.com). (c) Copyright Princeton University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in PRSO for personal use.date: 28 September 2021

Theories of the firm

Theories of the firm

Chapter:
(p.722) (p.723) Chapter Nineteen Theories of the firm
Source:
A Course in Microeconomic Theory
Author(s):

David M. Kreps

Publisher:
Princeton University Press
DOI:10.23943/princeton/9780691202754.003.0019

This chapter focuses on models of the firm that have the firm as the unit of analysis when they become formal. The classic theory of the firm as a profit-maximizing production possibilities set is the starting point, and it begins by attacking the notion that profit maximization is what a firm does or ought to do. The chapter then discusses so-called managerial models of the firm, where the firm is conceived of as a production possibilities set that does not maximize profits but pursues some other goal that reflects the interests of managers: maximization of sales revenue, or of capital, or of the probability of a “satisfactory” level of profits. Finally, it considers a very different conception of the firm. In this approach, firms are dynamic entities, which at a given point of time, are described by a production routine and which evolve according to environmental factors through patterns of search and imitation, looking for better routines.

Keywords:   firms, profit-maximizing production, profit maximization, managerial models, production possibilities, managers, production routine

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