Economists Normally Assume That the Goal of a Firm Is

question 646

Multiple Choice

Economists normally assume that the goal of a firm is to (i)
Earn profits as large as possible, even if it means reducing output.
(ii)
Earn revenues as large as possible, even if it means reducing profits.
(iii)
Minimize costs, regardless of profits.

• A)(i) only
• B)(i) and (ii) only
• C)(ii) and (iii) only
• D)(i), (ii), and (iii)

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Definitions:

Real Risk-Free Rate

The rate of return on a risk-free investment, such as government treasury bills, adjusted for inflation, representing the true earning power of the investment.

Expected Inflation Rate

The predicted average rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.

Market Risk Premium

The additional return that investors demand for holding a risky market portfolio instead of risk-free assets.

Required Rate Of Return

The required rate of return is the minimum annual percentage earned by an investment that will induce individuals or companies to put money into a particular security or project.