"An Objective of Firms Is to Maximize Profits

question 66

Multiple Choice

"An objective of firms is to maximize profits". This statement

• A) is a normative statement and thus cannot be tested.
• B) is an unrealistic assumption, and therefore of little use to economists.
• C) has been proven by empirical testing to be always true.
• D) applies only to corporations.
• E) is an assumption used by economists to predict the behaviour of firms.

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Definitions:

Managing Activities

The actions taken by an organization to plan, organize, direct, and control its operational, financial, and administrative tasks.

Financing Activities

Activities relating to raising money from investors and creditors such as the issuance of stocks and bonds and long-term notes; also, repurchase of outstanding stock and retiring bonds and notes as well as paying dividends.

Retained Earnings Activities

The portion of net income left over for the business after it has paid out dividends to its shareholders, often reinvested into the business or kept as a reserve.

Operating Revenue

Income earned from a company's core business operations, excluding revenue from non-operating sources like investments.