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

Question

Quizplus · Accepted Answer

This statement is an assumption used by economists to predict the behavior of firms. While firms may have other goals besides profit maximization, such as increasing market share or fulfilling social responsibilities, the assumption of profit maximization can help economists understand how firms are likely to behave in different market situations. However, in practice, firms may not always be able to maximize profits due to factors such as competition or government regulations.

"An Objective of Firms Is to Maximize Profits