Question

Economists normally assume that the goal of a firm is to:

(i) sell as much of its product as possible.

(ii) set the price of the product as high as possible.

(iii) maximize profit.

Answer 1

(iii) maximize profit.

Step-by-step explanation:

(i) Selling as much as possible is not always a viable business model, regardless of how much it sells, a firm might not perform well if it is selling its products at a low profit margin or even at a loss.

(ii) Setting an extremely high price for a product may decrease demand and open up opportunities for competitors to enter the market selling at a lower price; an optimal equilibrium price is preferable to the highest possible price.

(iii) According to economists, this should be the main goal of a firm. Be it by reducing costs or increasing revenue, maximizing profits should be the aim of a business.