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Friedman introduced the theory in a 1970 essay for The New York Times titled "A Friedman Doctrine: The Social Responsibility of Business is to Increase Its Profits". [2] In it, he argued that a company has no social responsibility to the public or society; its only responsibility is to its shareholders. [2]
An example diagram of Profit Maximization: In the supply and demand graph, the output of is the intersection point of (Marginal Revenue) and (Marginal Cost), where =. The firm which produces at this output level is said to maximize profits.
Thus the profit maximization model predicts something about the effect of taxation on output, namely that output decreases with increased taxation. If the predictions of the model fail, we conclude that the profit maximization hypothesis was false; this should lead to alternate theories of the firm, for example based on bounded rationality.
For example, profit maximization lies behind the neoclassical theory of the firm, while the derivation of demand curves leads to an understanding of consumer goods, and the supply curve allows an analysis of the factors of production.
Le Bon's important work, The Crowd: A Study of the Popular Mind, discusses the role of "crowds" (also known as crowd psychology) and group behavior as they apply to the fields of behavioral finance, social psychology, sociology and history. Selden's 1912 book Psychology of The Stock Market applies the field of psychology directly to the stock ...
Therefore, a growth imperative is usually not assumed here, but rather a free decision between current and future consumption. [5] This "intertemporal optimization" is represented, for example, by the Keynes-Ramsey rule. [51] In consumption sociology various theories of consumer society examine the influence of social norms on
[5] This comment is perfectly in line with the notion of Homo economicus and the idea, propounded by Smith in The Wealth of Nations and, in the 20th century, by the likes of Ayn Rand (in The Virtue of Selfishness, for example), that pursuing one's individual self-interest promotes social well-being. In Book V, Chapter I, Smith argues, "The man ...
The classic counter example to the expected value theory (where everyone makes the same "correct" choice) is the St. Petersburg Paradox. [3] In empirical applications, several violations of expected utility theory are systematic, and these falsifications have deepened our understanding of how people decide.