Reference no: EM132929745

Discuss and provide Detailed Explanations and references to the following questions. Answer only if you are SURE.

1. Explain the profit maximization hypothesis, and briefly outline the price/output decision model with profit as the objective. List the theoretical arguments against this, including informational difficulties, the weakening of competition and the divorce of ownership and control. Finally explain the empirical evidence: do firms maximize profits, either by accident (as if) or by design? This question is not an opportunity to parade a summary of alternative models.

2. Critically assess the methods used to generate empirical estimates of both short- and long-run cost functions. Do the empirical difficulties encountered rob the resulting estimates of any general operational utility?

3. 'Attempting to learn how to make decisions is an exercise in futility. All the most important decisions are made by people with little time and even less information, acting on instinct.' If you must answer this question, explain what is meant by scientific decision-making, by expanding the framework for decisions encountered, and then providing a critique of this, noting the apparent ability of many decision makers to 'manage' outside this framework.

4. Explain what is meant by the discounting approach to investment appraisal, and contrast this to more ad hoc methods such as payback. Show that there may be circumstances where information is inadequate for discounting, and where other methods more adequately reflect the firm's objectives. Finally discuss the empirical evidence (which seems to point to the use of other methods in smaller companies, but that discounting is increasingly used by large corporations).