ECONOMICS (CBSE/UGC NET)

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ECONOMICS

PROFIT

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Economists generally assume that firms are aiming to maximise their profits. To do this, they need to find the optimum output level at which to operate.
A
Yes, I understand this from the notes
B
No, I don’t understand this from the notes
C
No, I don’t understand this, as I have not read the notes
D
None of the above
Explanation: 

Detailed explanation-1: -Economists typically assume that a firm’s only goal is to maximize: Profit. It is the difference between revenue and costs.

Detailed explanation-2: -It is assumed that firms wish to maximise profits because this will enable the owners and managers to maximise their own salary, bonus and dividends. To maximise profits, they will seek to cut costs and set the profit maximising price and level of output.

Detailed explanation-3: -Economists assume, for example, that the owners of businesses seek to maximize profit. Given the assumed goal of profit maximization, economists can predict how firms in an industry will respond to changes in the markets in which they operate.

Detailed explanation-4: -A manager maximizes profit when the value of the last unit of product (marginal revenue) equals the cost of producing the last unit of production (marginal cost).

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