The theory of the firm holds that the primary goal of a firm is to maximize the discounted present value of the positive difference between the firm's total revenue and the firm's total cost or to minimize the present value of the negative difference between the firm's total revenue and total cost.

Question

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The theory of the firm posits that firms aim to maximize their wealth, which is effectively done by maximizing the present value of the difference between total revenues and total costs over time. This involves either maximizing profits (positive difference) or minimizing losses (negative difference).

The Theory of the Firm Holds That the Primary Goal