"Is it a better assumption to
suppose that firms maximize profits than to suppose that consumers
maximize utility?"
Evidently both happen simultaneously in most situations, however if the model design forces a choice of one or the other the appropriate choice will depend on the scale at which the model is intended to work. Scale is important because it determines the relative power of firms and consumers to realize their goal. If firms have more power over consumers than the consumers have over the firms then the outcome of most conflicts with represent the interests and goals of the firm (ie: maximize profit) where as if consumers have more power than the firms then the typical behaviour will reflect their goal (ie maximize utility).
Large firms can hire advertising companies who have the knowledge and skill to manipulate consumers into buying unnecessary or even harmful products. They can extort governments into providing subsidies to attract their production facilities because they employ such large numbers of people. In many countries they can even directly or indirectly bribe political leaders or whole legislatures into enacting laws which help them maximize profits.
In contrast, small firms have none of the powers discussed above. Instead they often depend upon word-of-mouth to grow their customer base, rely on loyalty of existing customers, and are frequently displaced by rent increases or other policy changes. Indeed, small firms often resort to appealing directly to their consumers when faced with political moves which hurt their business.
Thus, models which attempt to describe the actions of small firms should assume consumers maximize utility whereas models which attempt to describe the actions of large firms should assume the firm acts to maximize profits.
