Why assume that firms maximize profit, when it is easy to find companies that pursue other goals such as saving rain forests (Ben and Jerry’s) and sponsoring Mister Rogers (Sears)?
What will be an ideal response?
Assuming that the two cited firms are not pursuing maximum profit (and that is not certain, since good PR may be a profit-maximizing tool), profit maximization is useful as a simplification of reality. We can learn much about the way firms operate, even if they do not behave this way all the time. Second, even nonprofit firms must pay attention to the bottom line. It is worthwhile for them to know how much profit is forgone if they choose a goal other than profit maximization.
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In the short run, an increase in demand for a good that is sold in a perfectly competitive market
A) increases the number of firms in the market. B) increases the economic profits of existing firms in the market. C) has no effect on the price. D) causes more firms to shut down.
A theory of saving is necessarily a theory of consumption, because ________
A) by definition, any unit of disposable income that is not a consumption expenditure is a unit of saving B) consumption decisions are made after saving has occurred C) private saving is equal to private investment D) the goal of consumption choices is to achieve the desired level of savings