Answer to Question #53293 in Microeconomics for Nasser

Question

Economists assume that the goal of a firm is to maximize profits.
a. Explain fully how the firm achieves this goal. (10 marks)
b. Why do economists use Economic instead of Accounting profits? (2 marks)
c. Identify and explain FOUR other important goals, in addition to profit
maximization, that firms may pursue?

Answer 1

a. The firm achieves this goal, if its marginal costs equal marginal revenue.
b. Economists use Economic instead of Accounting profits, because the first one also counts the opportunity costs of other possibilities of using money and time.
c. The other important goals, in addition to profit maximization, that firms may pursue, are: cost minimization, economy on scale and the satisfying the demand for product.