Suppose the Utility Function for a Firm Manager Is U

question 69

Multiple Choice

Suppose the utility function for a firm manager is U = π + bQ, where Q is output, π is profit, and b is a positive constant. How would the firm's output compare with what it would be if the manager's objective was to maximize profit?

• A) It would be greater than the profit-maximizing output.
• B) It would be less than the profit-maximizing output.
• C) It would be the same as the profit-maximizing output.
• D) None of the statements is correct.

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Definitions:

Par Value

A nominal or face value assigned to a share of stock or a bond by the issuing company, often unrelated to its market value.

Common Stock

A type of security that represents ownership in a corporation, giving holders voting rights and a share in the company's profits through dividends.

Partnership

A Partnership is a legal form of business operation between two or more individuals who share management and profits.

Capital Accounts

Accounts on a company's balance sheet that represent the cumulative amount of equity invested by shareholders and retained earnings.