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Alternative Long-Run Goals and the Theory of the Firm: Why Profit Maximization May Be a Better Assumption Than You Think

  • Hayne E. Leland
Part of the Mathematical Concepts and Methods in Science and Engineering book series (MCSENG)

Abstract

For several decades, economists have subjected the assumption that firms maximize profits to a barrage of criticism. Firms maximize sales (Ref. 1). Firms maximize utility of profits and sales (Ref. 2). Firms maximize just about anything but profits.† And firms that have alternative goals, we are led to believe, do not exhibit profit-maximizing behavior. In this paper, we accept the fact that firms may have goals that differ from profit maximization, but we reject the conclusion that their behavior must differ from that of a profit-maximizing firm.

Keywords

Optimal Policy Capital Stock Optimal Path Profit Maximization External Finance 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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References

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Supplementary References

  1. Baumol, W., On the theory of the expansion of the firm, American Economic Review, Vol. LII, pp. 1078–1087, December 1962.Google Scholar
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Copyright information

© Plenum Press, New York 1980

Authors and Affiliations

  • Hayne E. Leland
    • 1
  1. 1.School of Business AdministrationUniversity of CaliforniaBerkeleyUSA

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