Reference no: EM133083090

There have been many articles written examining the assumption of profit maximization. Perhaps the most persuasive response relies on the capital market constraint.  Most large firms are publicly owned corporations. The owners of these firms are the stockholders.  Stockholders mainly focus on the growth in earnings per share - in other words, profit. Businesses that do not focus on the bottom line will see their stock price fall and will not be able to expand as rapidly as those firms motivated by profits.

Question: Are there firms not subject to the capital market constraint? 

Suppose you own a truck and use it to haul merchandise for retailers such as Target and Sears. Your typical run is 200 miles, and you hire one person to drive the truck at a cost of $20 per hour. How fast should you instruct her to drive the truck?

If the driver's time were the only input, the problem would be simple: Labor costs are minimized if you tell her to drive fast. But, of course, trucks require not only drivers but also fuel, which is where the question gets more interesting. As it turns out, the fuel mileage that a truck gets diminishes with speed beyond about 50 mph.

Modern technology, in the form of on-board computers, allows a modern trucking firm to monitor driving speed and instruct drivers.

Question: When gasoline prices rise, accident rates fall. Provide two reasons this might be true.