ECONOMICS

Neoclassical model and managerial functions

Neoclassical model and managerial functions

Introduction

A number of theories have been proposed in the past, which explain the nature of management and what should be done to maximize the revenues earned by the firm. Over the year, ongoing researches by the theorists have shown that the former theories have highlighted only a limited view of the role of managers. The theories presented in modern era contradict with that presented in old days. Several arguments have been placed by many researchers regarding the nature of a firm and the behaviour of mangers. This paper examines the neoclassical model for the firm's functions and also highlights the modern managerial philosophy.

Background of the neoclassical theory

The neoclassical theory prevailed during the 1920 and 1950 and was proposed in argument of the traditional classical theory. This theory held that all the actions of works can be determined in advance for the maximization of profit. It did not consider the concept of motivation in improving performance. Moreover, it did not consider the resource constraints for improving a firm's profitability. Hence, based in these arguments, the neoclassical model of management was proposed. This was a more human oriented approach that considered variable s such as attitude and behaviour of workers, resource constraints, and motivation to bring improved performance for increasing revenues earned by a firm. Another factor that led to the development of neoclassical model of management was industrialization that prevailed in the era. Owing to these factors, human relations and behavioural school of thoughts appeared under the neoclassical model (Sridhar, n.d).

Neoclassical theory of firms

The neoclassical theory of firms resets upon three basic assumptions. These assumptions are that the firm is a profit-maximiser and it optimizes, it can be treated in a holistic way, and perfect certainty (Davies and Lam, 2001). In order to understand the neoclassical theory, we will explore the three assumptions.

Assumption 1: The firm is a profit-maximiser: it is assumed to make as much profit as possible.

The first assumption of the neoclassical model proposes that the firm is an entity that can make as much profit as it wants. The profit generation depends upon the targets of profits set by the managers. According t the assumption, a firm can optimize it performance. This means that a firm can deliver the maximum output with the least input, it its wants to do so. It denotes consider the performance that is feasible for an organization to achieve. It does not regard the establishment of some acceptable criteria of performance for an organization (Davies and Lam, 2001). This assumption can further be classified as:

Profit maximization in the short run

It emphasises on the profit generation at the maxim mum level under the given resources, in a very short fame of time. For example, maximum production with the given plant and equipment (Davies and Lam, 2001).

Profit maximization in the long run

This lead to the idea that the wealth of the shareholders can be maximized in the long run by making the maximum use of resources (Davies ...