Economists normally assume that the goal of a firm is to earn i) profits as large as possible, even if it means reducing output.
Ii) profits as large as possible, even if it means incurring a higher total cost.
Iii) revenues as large as possible, even if it reduces profits.

Question

Quizplus · Accepted Answer

The goal of a firm is assumed to be profit maximization, which means earning profits as large as possible. This can be achieved by reducing output (which reduces costs) or incurring higher total costs (if it leads to higher revenues and profits). However, the goal is not to maximize revenues at the expense of profits, as that would not be sustainable in the long run. Therefore, only choices i) and ii) are consistent with profit maximization, while choice iii) is not.

Economists Normally Assume That the Goal of a Firm Is