The primary objective of this work is to develop a behavioral basis for an AI algorithm to assist managers of finance, production, and marketing divisions of firms in imperfect markets. Production, sales revenue, external finance, and networth (market value of the fixed assets) have the pivotal role as objectives. However, all of them cannot be maximized simultaneously due to the interdependence among them. The managers tend to pursue the most valuable objective using the most productive strategy at each point of time. This was utilized as a basis for the AI algorithm. Non-linearities in the switches in objectives and strategies are a short run phenomenon while swaps will be preferred if firms have a long run advantage. Such observed phenomena were also incorporated in the specification of the AI algorithms. 

The important results are as follows. (i) In most industries the shortage of demand is not a constraint. Instead, the ability of firms to increase their strategic supply is dominant. (ii) Most firms pursue strategic supply based on the capital stock available. This indicates a preference for external finance. (iii) In the short run firms utilize working capital finance and selling costs to ensure that the sales revenue achieved is commensurate with the strategic supply. (iv) Thus, the postulate that expected demand determines the strategic supply as well as the profit maximization postulate for the short run do not appear as the priorities.

T. V. S. Ramamohan Rao is an emeritus professor and an institute fellow of the Indian Institute of Technology (IIT) Kanpur. His research and publications are in the areas of industrial organization, microeconomic theory, and econometrics.