Topic 2 Solution.pdf - Topic 2 The Firm and Its Goals(Solution Economics for Management(CQD7001 Question 1 The following is a quote from a New York

Topic 2 Solution.pdf - Topic 2 The Firm and Its...

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Economics for Management (CQD7001) Topic 2 The Firm and Its Goals (Solution) Question 1. The following is a quote from a New York Times article: “If a company makes product donations to the school-computers for instance-then the image of a company goes up as graduate students use the company’s products.” Does such action square with a company’s objective of profit maximization? Discuss. Solution Yes. The company can profit from this action in several ways. Graduate students, impressed with the computers, may become recruits for the computer firm. This increases the employ- ment market for the firm, and it may become able to hire some superior graduates. Or, these students, after graduation, will work for other firms and recommend the computer made by this manufacturer for use in their work place. In short, if the additional profits from future sales exceed the cost of the donation, then such a policy is quite consistent with profit maximization.
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