Which statement below is most correct?

a) The economic theory of the firm focuses upon explaining firms' decision making by

assuming firms are primarily motivated by attempting to maximize their contribution to

general public's social welfare.

b)

The theory of the firm holds that the primary goal of a firm is to maximize the

discounted present value of the positive difference between the firm's total revenue and the firm's total cost or to minimize the present value of the negative difference between the firm's total revenue and total cost.

c) The value of a firm is equal to the sum of all future profits (NOT discounted) that will be

generated by the firm.

d) None of these three answers are even partially correct.

Expert Solution

Here the most correct statement will be:

b. The theory of the firm holds that the primary goal of a firm is to maximize the discounted present value of the positive difference between the firm’s total revenue and the firm’s total cost or to minimise the present value of the negative difference between the firm’s total revenue and total cost.

Rahul Sunny answered 2 years ago

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