A firms revenue varies with its output: R(q). Its managers income, Y, equals aR(q), where 0 6
Question:
A firm’s revenue varies with its output: R(q). Its manager’s income, Y, equals aR(q), where 0 6 a 6 1 is the manager’s share of the firm’s revenue. Use calculus to prove that maximizing aR(q) implies the same output level, q, as maximizing R(q). What does this result imply about the manager’s incentive to maximize the firm’s profit, π(q) = R(q) – C(q)? Would it be better for shareholders if the manager received a share of profit rather than a share of revenue?
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Related Book For
Managerial Economics and Strategy
ISBN: 978-0321566447
1st edition
Authors: Jeffrey M. Perloff, James A. Brander
Question Posted: