When an Economist Assumes That the Owners of Firms Are

question 19

Multiple Choice

When an economist assumes that the owners of firms are motivated only by the desire to maximize profits,the economist most likely believes that

• A)it doesn't matter whether or not the assumption is descriptively accurate; what matters is whether a theory built on the assumption predicts well.
• B)the assumption is descriptively accurate,since surveys have been taken and the owners of firms have admitted that their only objective is to maximize profits.
• C)the assumption is inaccurate,since surveys have been taken and the owners of firms have admitted that they care about more than just profits.
• D)individuals entering business are quite narrow in their personal objectives.
• E)all people enter business for their own selfish gain.

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Definitions:

Direct Labour Hours

The total number of hours worked by employees directly involved in the manufacturing process or delivery of a service.

Applied Overhead

The allocation of estimated overhead costs to specific products or job orders based on a predetermined rate or formula.

Manufacturing Overhead

Includes all the indirect costs associated with the production process, excluding direct materials and direct labor.

Assembly Division

A department or area within a manufacturing firm that is responsible for assembling the components of a product into a finished good.