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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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