Opportunity costs and non-scale free capabilities: profit maximization, corporate scope, and profit margins

Opportunity Costs and Non-Scale Free Capabilities: Profit Maximization, Corporate Scope, and Profit Margins

The resource-based view on firm diversification, subsequent to Penrose (1959), has focused primarily on the fungibility of resources across domains. We make a clear analytical distinction between scale-free capabilities and those that are subject to opportunity costs and must be allocated to one use or another, thereby shifting the discourse back to Penrose’s (1959) original argument regarding ...

Profit maximization with bankruptcy and variable scale

In a diffusion model of an enterprise with variable scale, conditions are given for the maximization of ‘profit’ (expected total discounted withdrawals) to lead to bankruptcy almost surely. The optimal withdrawal policy is an ‘overflow policy’: the withdrawal rate is zero if the asset level is below a ‘barrier’, and equal to the maximum rate if the asset level is at least equal to the barrier. ...

Profit Maximization and Supermodular Technology

A dataset is a list of observed factor inputs and prices for a technology; profits and production levels are unobserved. We obtain necessary and sufficient conditions for a dataset to be consistent with profit maximization under a monotone and concave revenue based on the notion of cyclic monotonicity. Our result implies that monotonicity and concavity cannot be tested, and that one cannot deci...

Customer Selection and Profit Maximization

The Ultimate Profit Opportunity

To make informed forecasting and replenishment decisions, many companies bring together operational elements of production and distribution with sales and marketing, executing Sales and Operations Planning (S&OP) collaborative improvement processes. As cross-functional and consensus-based processes, S&OP activities create value by keeping supply and demand in balance. But most S&OP arrangements...