Consider an economic model designed to analyze the behavior of business firms.An assumption that the goal of the firms is to maximize profit would be
A) a simplifying assumption
B) a critical assumption
C) an abstraction from reality
D) an unnecessary detail
E) irrelevant to the conclusions of the model

Question

Quizplus · Accepted Answer

The assumption that the goal of the firms is to maximize profit is a critical assumption because it is essential to the understanding of how firms behave in the economy. This assumption is the foundation of neoclassical economics, which is the dominant economic theory used in microeconomics. Without this assumption, the economic model would not be able to accurately predict how businesses will behave in response to changes in market conditions.

Consider an Economic Model Designed to Analyze the Behavior of Business