Why Do Economists Sometimes Treat Decision Makers as Boundedly Rational

question 37

Essay

Why do economists sometimes treat decision makers as boundedly rational?

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Definitions:

Capital Structure

The composition of a company's funding through debt and equity, and how it impacts its risk and value.

Fixed Cost

Business expenses that remain constant regardless of the level of production or sales, such as rent, salaries, and insurance premiums.

Financial Leverage

The use of borrowed funds with a fixed cost in an attempt to increase the returns to shareholders by magnifying investment gains or losses.

EBIT

Earnings Before Interest and Taxes, a financial metric that calculates a firm’s profit excluding interest and income tax expenses.