Managerial And Behavioural Theory Of The Firm

1899 Words Nov 12th, 2014 8 Pages
Introduction
With the roots of the neoclassical theory of the firm dating back to the 1770’s and some of the more recent developments being some 80 years ago, it is understandable that economists have begun to question how applicable the Neoclassical theory of the firm is to present day corporations. (Lipczynski, Wilson, Goddard, 2009) Managerial and behavioural theories have been developed with the intention of providing a more realistic insight into how contemporary organisations function. This paper will address how the managerial and behavioural theories differ to the neoclassical approach of the firm, and to what extent they enhance our understanding of firms. In doing so Baumol’s sales revenue maximisation and Williamson’s managerial utility maximisation managerial models are both relevant, but given the word limitation, this paper will focus on Marris’s growth maximisation model and the behavioural theory of Cyert and March. Lastly, this paper will discuss the more modern theories developed relating to the firm and asses their suitability.
To allow us to consider how managerial and behaviourally approaches differ from that of the neoclassical, we must first understand the basics of neoclassical theory of the firm. The neoclassical theory of the firm splits markets into four key models; perfect competition, monopoly, monopolistic competition and oligopoly. All four market structures rely on the assumption that firms only ever seek to maximise profits. Each model is…
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