A Fundamental Criticism of the Traditional Theory of the Firm

question 64

Multiple Choice

A fundamental criticism of the traditional theory of the firm is that the decision makers in the firm may not even aim to maximise profits in the first place. On which of the following ideas is this criticism based?

• A) Owners of firms are not 'rational'.
• B) Shareholders are not the decision makers and have different interests from them.
• C) Shareholders are really utility maximisers.
• D) Many shareholders do not want to maximise profits.

---

Definitions:

Machine Disposal

Machine disposal involves the process of removing, selling, or discarding machinery and equipment that is no longer needed, useful, or functional for a business.

Rate Of Return

The gain or loss on an investment over a specified period, expressed as a percentage of the investment's cost.

Luxury Bus

A high-end, comfortable bus service designed for long distances with superior amenities.

Equal End-of-year Amounts

Represents the consistent annual payments made or received over the life of a financial instrument, often associated with loans or investments.