The theory of the firm is based on the following two key assumptions:
A) Each firm has a highly diversified product, and this leads to profit maximization.
B) Firms seek to maximize profit, and to distribute the maximum value in dividends.
C) Firms seek to maximize revenues, and to maximize undistributed profits.
D) Firms seek to maximize profits, and the firm is a single, consistent decision- making unit.
E) Firms seek to become as large as possible, and they seek to maximize total revenue.

Question

Quizplus · Accepted Answer

The theory of the firm assumes that firms seek to maximize profits, and that the firm is a single, consistent decision-making unit. This is the most commonly accepted assumption in economic theory and is the foundation of many economic models. The other choices are not accurate assumptions in the theory of the firm.

The Theory of the Firm Is Based on the Following