"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:

Discount Rate

The interest rate applied within the framework of discounted cash flow analysis to estimate the present value of future cash inflows.

Present Value

The present-day worth of money expected in the future or series of cash flows, calculated using a fixed rate of return.

Compounded Monthly

The process where interest is added to the principal amount each month, and future interest is earned on the increased balance.

Effective Annual Rate

The interest rate on an investment or loan that accounts for the effect of compounding over a one-year period.