Suppose the utility function for a firm manager is U = π + bQ, where Q is output, π is profit, and b is a positive constant. How would the firm's output compare with what it would be if the manager's objective was to maximize profit?
A) It would be greater than the profit-maximizing output.
B) It would be less than the profit-maximizing output.
C) It would be the same as the profit-maximizing output.
D) None of the statements is correct.

Question

Quizplus · Accepted Answer

The utility function includes both profit and output, with a positive weight on output (bQ). This means the manager values output in addition to profit, leading to a higher output level than if they were solely maximizing profit.

Suppose the Utility Function for a Firm Manager Is U