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Neoclassical model

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Let me first clarify the issues to you do not understand. The Neo classical model of the firm is also called the profit maximizing model. This model makes three assumptions. First, there is perfect certainty, meaning cost and demand conditions are known. Second, the firm is a single entity with objectives of its own and which makes decisions. Third, the firm maximizes a profit that is can make as much profits as it wants.
This is contrasted with the 'other' model or the behavioral/managerial model it makes the assumption that organizations do not have objectives, only people do have objectives. Also the model assumes that the firm does not exist, only a set of shifting coalitions of individuals exist. The groups of individuals do not maximize, they only satisfice. Finally, information about the environment is very limited. In other words it is not easy to predict costs and revenues.

Does a firm know its costs before it knows its revenues? What is the ideal relation between knowledge of costs and knowledge of revenues? Suggest ways in which a firm can obtain the ideal relation.
Not all costs, the sunk costs are known beforehand, however, the costs both variable and fixed costs tend to change and may change before the ...

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Hatim Baxamusa, MBA
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  • BSc , University of Calcutta
  • MBA, Eastern Institute for Integrated Learning in Management
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