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A Theory of Return-Seeking Firms

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Abstract

We introduce a theory of return-seeking firms to study the differences between this and standard profit-maximising models. In a competitive market return-maximising firms minimise average total costs leading to output choices independent of price movements. We investigate the potential for mark-ups over cost under both competitive and non-competitive market structures and characterise output and input choices under both, amongst a series of other interesting results. We also extend the model in the case of discrete output and input space and show what conditions are required of demand shifts for firms to modify their production plan.

Suggested Citation

  • Cameron K. Murray & Brendan Markey-Towler, 2014. "A Theory of Return-Seeking Firms," Discussion Papers Series 497, School of Economics, University of Queensland, Australia.
    • Handle: RePEc:qld:uq2004:497
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    1. 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.
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    5. 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.
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