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The classical model of the firm was essentially a bare-bones shell for operating production cost functions.
The classical model of the firm was essentially a bare-bones shell for operating production cost functions. The principal or entrepreneur was deemed generally to have sufficient knowledge of the market and his cost functions to set a profit maximizing output level. Alchian [1950] upset this picture by pointing out:
a)Principals don't have that kind of information or foresight
b)Uncertainty makes profit maximization an impossible to define or measure guide to action
c)The problem is really one of selecting an appropriate expected outcome distribution including the expected value and variance
d)All of the above
