Econ assign 2

QUESTION 1 If the goal of the unassailable is both short- and long wampum maximization, (i)explain why a securely whitethorn pause short-run profits for long-run growth and profitability; A quick may have monopolize a overlap or service, thus taking advantage of the optimum shammer the whole will maximize profit by safekeeping the footing high. However, with such high profit margins, competitors will outgrowth to evaluate the potential of joining the bandwagon in order to put one across advantage of such high generate of investments. Hence the firm will enjoy short term profits until a new competitor enters the mart with a lower scathe structure (this is to ensure market penetration). Due to these circumstances the firm is forced to reduce the price, thus reducing the high profits. This translates to a reduced total profits in the long run. wide-cut term growth of the firm will be exceedingly influence by the firms and competitors death penalty. T o avoid competition to enter the firms monopolized market segment, it is foreseen that the pricing should be position in a aim that would make the competitors initial return of investments to be low.

(ii)Explain how and why the management team of the firm may have different objectives (goals) than the owners of the firm; and Modern corporations do non cater ownership participation of managers in the profitability of the firm. The shareholders (owners) indirect crave profits, but managers want leisure and security. The shareholders want to maximize the expire Of Investments (ROI) while the managers will only seek acceptable levels of writ of exec! ution without jeopardizing their job security. The owners are principals and the managers are termed as agents. These conflicting motivations in the midst of the groups are called agency problems. (iii)Explain how the owners of the firm can add the management teams objectives (goals) to be consistent with the owners goals. A solution to the miss-alignment is by introducing compensation as incentive. Extending...If you want to stupefy a full essay, order it on our website: BestEssayCheap.com

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