Do firms really seek to maximize profits?
Profit maximization is difficult because management needs a great deal of information about revenue and cost in order to maximize profit. In addition, management may have other goals, such as philanthropy, or members of a management team may not always agree on goals or means to obtain them. Therefore, this assumption is an oversimplification.
One suggested alternative goal is satisficing. As explained by Herbert Simon, this goal is common in much of industry and government. Because information is costly, firms may settle for less than maximum profit.
You might also like to view...
For a risk-averse individual, as wealth increases, total utility
A) increases at a decreasing rate. B) increases at a constant rate. C) increases at an increasing rate. D) is constant.
After the Great Depression of the 1930s and particularly since World War II until the 1970s, the ideas of the __________ school became conventional wisdom
a. classical b. Keynesian c. monetarism d. supply-side e. rational expectations
Which of the following decisions is the best example of a business engaging in marginal thinking?
a. choosing whether or not to manufacture an entirely new product line b. deciding to discontinue using newspaper advertising completely c. evaluating whether it would increase profits to add a second shift at their factory d. identifying the opportunity that will be lost when a certain action is taken
How are consumers, firms, and investors affected when the U.S. dollar is “weak?” Who benefits and who is harmed?
What will be an ideal response?