"An objective of firms is to maximize profits." This statement
A)has been proven by empirical testing to be always true.
B)is an assumption used by economists to predict the behaviour of firms.
C)is a normative statement and thus cannot be tested.
D)applies only to corporations.
E)is an unrealistic assumption,and therefore of little use to economists.

Question

Quizplus · Accepted Answer

This statement is an assumption used in economic theory to predict the behavior of firms. While many firms do strive to maximize profits, it is not always their sole objective. Additionally, there are many situations in which firms may behave in ways that do not directly lead to profit maximization, such as investing in long-term research and development or engaging in socially responsible activities. However, the assumption that firms aim to maximize profits is still useful in understanding how markets work and how firms are likely to behave in different situations.

"An Objective of Firms Is to Maximize Profits