Which of the following types of theories is the maximizing profits strategy based on?

• A. Normative theory
• B. Behavioral theory
• C. Positive theory
• D. Descriptive theory

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the meaning of each type of theory in economics. Normative theory involves value judgments about what ought to be, Behavioral theory studies actual behavior and decision-making processes, Positive theory explains and predicts economic phenomena based on objective analysis, and Descriptive theory describes how things are without necessarily explaining why.
2. Step 2: Recognize that the maximizing profits strategy is a model used to explain how firms make decisions to achieve the highest possible profit, which is an objective and predictive approach.
3. Step 3: Since the maximizing profits strategy aims to describe and predict firm behavior based on rational decision-making, it aligns with Positive theory, which focuses on explaining economic behavior without value judgments.
4. Step 4: Contrast this with Normative theory, which would prescribe how firms should behave, and Behavioral theory, which would focus on actual observed behavior that may deviate from profit maximization.
5. Step 5: Conclude that the maximizing profits strategy is based on Positive theory because it provides a testable and objective explanation of firm behavior in microeconomics.