A Theory of Return-Seeking Firms
14 Pages Posted: 4 Apr 2017
Date Written: April 4, 2017
We introduce a theory of return-seeking firms to study the differences between this and profit-maximising models. A return-seeking objective takes into account the opportunity cost of each additional resource input to a firm’s production as being a potential capital input choice in an alternative project. We find that firm supply curves cease to exist in perfectly competitive markets, supply curves in general may slope up as well as down, that economies of scale are necessary for production, and that firms always produce on a decreasing portion of their cost curve.
Keywords: Firm objective, firm production, supply, pricing
JEL Classification: D21, D42, D43, L2, L13
Suggested Citation: Suggested Citation