Three firms have identical revenue and profit functions with the same general shape as those in figure Firm 1 is a private sector firm operated by an owner- manager who wishes to maximize profit. Firm 2 is managed by an income- maximizing manager whose pay is proportional to the firm’s revenue. Firm 3 is a government- owned firm that has been instructed to maximize the amount of employment, L, subject to the constraint that revenue must not be negative. To increase q, L must increase. Which of these firms produces the most, which the least, and which is in the middle? Show the output level of each firm in a diagram.

  • CreatedNovember 13, 2014
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