Page 317 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Microeconomic Theory Hitesh Jhanji, Lovely Professional University

Notes
Unit-19: Behavioural and Managerial Theories of the Firm

CONTENTS
Objectives

Introduction

19.1 Growth Maximization Model of Marris
19.2 Baumol’s Sales Maximization Model

19.3 Summary
19.4 Keywords

19.5 Review Questions

19.6 Further Readings

Objectives

After studying this unit, students will be able to:
• Understand growth maximization theory of Marris.
• Understand the criticism of Marris model.
• Know Baumol’s Sales Maximization Model.
• Know the basic of model.

Introduction

Some important firms’ behaviour related and administrative theory are discussed in this unit. Those
are—The satisfaction theory of Simon, the behavioural theory of Syert and March, the management
theory of Williamson, growth maximization theory of Marris and Baumol’s Sales Maximization
Model. These concepts are based on those assumptions which are purely different from the profit
maximization of neo-classic theory. These theories represent differences between managers and
owners of big firms. We will discuss the behaviour related and administrative theory of firm.

19.1 Growth Maximization Model of Marris

Marris has developed a growth maximization model of a firm in economics and mentioned in
his book The Economic Theory of Managerial Capitalism (1964). He proposed the theory upon that
the modern big firms have run by managers and shareholders are owner who take decisions for
managerial status of firms. Managers want to grow the rate of production of firm and shareholders
want to grow their shares and profits. To maintain a relation between firm’s growth and price of
shares, Marris has developed a steady state model, in which manager selects a fixed growth rate on

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