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A theory of return‐seeking firms

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  • Cameron K. Murray
  • Brendan Markey‐Towler

Abstract

We introduce a theory of return‐seeking firms to study the differences between this and profit‐maximising models. A return‐seeking objective takes into account the opportunity cost of each additional resource input to a firm's production as being a potential capital input choice in an alternative project. We find that firm supply curves cease to exist in perfectly competitive markets, that supply curves may slope up as well as down, that economies of scale are necessary for any production to occur and that firms always produce on a decreasing portion of their cost curve.

Suggested Citation

  • Cameron K. Murray & Brendan Markey‐Towler, 2019. "A theory of return‐seeking firms," Australian Economic Papers, Wiley Blackwell, vol. 58(3), pages 247-258, September.
    • Handle: RePEc:bla:ausecp:v:58:y:2019:i:3:p:247-258
    DOI: 10.1111/1467-8454.12152
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    1. Gueorgui Kambourov & Iourii Manovskii, 2009. "Occupational Specificity Of Human Capital," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 63-115, February.
    2. John Shea, 1993. "Do Supply Curves Slope Up?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(1), pages 1-32.
    3. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    4. Graham, John R. & Harvey, Campbell R., 2001. "The theory and practice of corporate finance: evidence from the field," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 187-243, May.
    5. Walter Y. Oi, 1962. "Labor as a Quasi-Fixed Factor," Journal of Political Economy, University of Chicago Press, vol. 70(6), pages 538-538.
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