Economists assume that firms seek to

Question

Quizplus · Accepted Answer

Economists assume that firms seek to maximize economic profit, which takes into account both explicit (accounting) costs and implicit (opportunity) costs. Thus, a firm that maximizes economic profit is essentially trying to achieve the highest possible return on investment, taking into account all relevant costs. Maximization of accounting profit (Choice A) considers only explicit costs and does not account for opportunity costs; maximizing total revenue (Choice C) may not lead to profit maximization if costs are too high; normal profit (Choice D) is the minimum level of profit needed to keep a firm in business and is not related to profit maximization; and minimizing cost (Choice E) is a strategy that can contribute to profit maximization but is not the sole objective of a firm.

Economists Assume That Firms Seek to