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What are firms assumed to maximize? under what constraints do firms perform this maximization

Sagot :

Firms are assumed to maximize their profits that is to say, profit maximization.

Profit maximization should occur when there is a significant gap or the biggest difference between the total revenue and the total cost.

A perfectly competitive firm attains maximization of profit when the marginal revenue is equal to the marginal cost.

The benefits of maximizing profit include:

Profit can be used to pay higher wages to owners and workers. (Note that, if firm has monopsony power, the profit may not be shared equally amongst workers).

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