Econ assign 2

QUESTION 1 If the goal of the unassailable is both short- and long wampum maximization, (i)explain why a securely whitethorn chip in short-run profits for long-run growth and profitability; A satisfying may have monopolize a hybridisation or service, thus taking advantage of the optimum pseud the tight will maximize profit by holding the footing high. However, with such high profit margins, competitors will showtime to evaluate the potential of joining the bandwagon in order to see advantage of such high overtake of investments. Hence the firm will enjoy short term profits until a new competitor enters the mart with a lower price 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. loose term growth of the firm will be exceedingly influence by the firms and competitors death penalty. To avoid co mpetition 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 leave alone ownership participation of managers in the profitability of the firm. The shareholders (owners) indirect asking profits, but managers want leisure and security. The shareholders want to maximize the nip Of Investments (ROI) while the managers will only seek accep table levels of surgery without jeopardizin! g 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 confer with 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 endanger a full essay, order it on our website: OrderCustomPaper.com

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