Purchase Solution

A Critique on Salvatore's Theory of the Firm

Not what you're looking for?

Ask Custom Question

According to Salvatore (2012, p. 14) "The theory of the firm, which postulates that the goal or objective of the firm is to maximize wealth or the value of the firm, has been criticized as being much too narrow and unrealistic." Comment on this criticism and evaluate the alternatives. Do these alternative theories explain the objective of the firm better relative to the theory of the firm? Why? Are the alternative theories competing or complementing the theory of the firm? How?

Purchase this Solution

Solution Summary

This is a critique of Salvatore's "theory of the firm".

Solution Preview

Maximizing wealth or value of the firm is necessary for a firm to exist but, contrary to Salvatore, it is not the prime objective. Authorities in business and management are unanimously saying that firms must exert effort to put a premium on the value firm but they must ensure that corporate social responsibility must not be forgotten in the equation. The arguments below assailed the profit motive theory of the firm.

The arguments:

Business Talk (2012) notes that "for a business, it is not necessary that profit should be the only objective; it may concentrate on various other aspects like increasing sales, capturing more market share, return on capital etc."
It added that "social responsibility" must be ...

Purchase this Solution


Free BrainMass Quizzes
Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.