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:

Human Capital

The sum of abilities, expertise, and non-material assets possessed by people that can generate economic benefits for themselves, their employers, or their local area.

Physical Capital

Tangible assets used in the production of goods and services, such as buildings, machinery, and equipment.

Economic Profit

The profit a company makes after subtracting both its explicit and implicit costs from total revenues.

Labor Services

The physical and intellectual efforts provided by workers in exchange for wages.