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Short-run profit maximization - Assignment Example

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Masters
Author : audrey10
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Finance & Accounting
Pages 3 (753 words)
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Summary

The purpose of the researcher of this paper is to present the following texts: Short-run Profit Maximization and The Agency Problem. The researcher of this paper also makes appropriate recommendations and conclusions…

Extract of sample
Short-run profit maximization

It is evident from the study that in business, you obviously want to avoid spending more money than you make. Speaking in terms of production, there is a point where when you start producing too much, it becomes unprofitable. Therefore, it is optimal for a company to produce as long as they are making a profit. After the optimal production point is reached, the company begins to lose money if they continue to produce. If you picture marginal revenue (the additional revenue generated from increasing sales by one unit) as a line on a graph, and picture marginal cost (the cost of producing one more unit) as another line on a graph, you can observe that the lines will intersect at some point. Up until this intersection, marginal revenue will exceed Marginal Cost, whereas after this point, marginal cost will begin to exceed marginal revenue. In business terms, we can think of citizens as shareholders and the president as the agent. Shareholders desire agents whose objectives are in alignment with their objectives. However, the objectives of the principal and agent can differ for a variety of reasons. For example, the president may have a personal motive for doing something that is detrimental to the goals of the citizen. What creates the agency problem, though, is when the agent hides the action and/or the information, making the problem more difficult to overcome. These agency problems occur in the business world between shareholders and managers as well as in business to business interactions. ...
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