The economic theory assumes that firms behave rationally which in turn results in an effort to maximize gains and minimize losses.

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The assumption of rational behavior is a key concept in economic theory and is commonly used to explain the decision-making process of firms. Rational behavior implies that firms aim to achieve specific goals, such as maximizing profits or minimizing costs, by using all available information to make informed decisions. This assumption allows economists to develop models that accurately predict how firms will respond to different economic incentives and constraints.

The Economic Theory Assumes That Firms Behave Rationally Which in Turn