A Theory of Return‐Seeking Firms

12 Pages Posted: 19 Mar 2020

Multiple version iconThere are 2 versions of this paper

Date Written: September 2019

Abstract

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, that supply curves may slope up as well as down, that economies of scale are necessary for any production to occur and that firms always produce on a decreasing portion of their cost curve.

Keywords: firm objective, production, return maximisation, supply curves

JEL Classification: D21, D42, D43, L2, L13

Suggested Citation

Murray, Cameron and Markey‐Towler, Brendan, A Theory of Return‐Seeking Firms (September 2019). Australian Economic Papers, Vol. 58, Issue 3, pp. 247-258, 2019, Available at SSRN: https://ssrn.com/abstract=3556777 or http://dx.doi.org/10.1111/1467-8454.12152

Cameron Murray (Contact Author)

The University of Sydney ( email )

University of Sydney
Sydney, NSW 2006
Australia

Brendan Markey‐Towler

Evidn ( email )

Australia

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