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)?
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. Secondly, 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 and Edgeworth Box economy, no one strictly prefers the endowment allocation to the competitive equilibrium allocation.
Answer the following statement true (T) or false (F)
A tax multiplier equal to ?4.30 would imply that a $100 tax increase would lead to a:
A. $430 decline in real GDP. B. $430 increase in real GDP. C. 4.3 percent increase in real GDP. D. 4.3 percent decrease in real GDP.
When referring to "marginal" changes, the economic focus is on:
A. changes which affect only a few people or products. B. large changes on the low end. C. graduated changes on the high end. D. small or incremental changes.
When the investment is graphed as a function of real GDP
A. it graphs as a vertical straight line. B. it graphs as a negatively sloped line indicating the inverse relationship between interest rates and investment. C. it graphs as a horizontal straight line at the level of investment. D. it graphs as a 45-degree line starting at the indicated level of investment.