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.

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Definitions:

Obesity

A medical condition characterized by excessive body fat accumulation, which poses a risk to health, including increased chances of heart disease, diabetes, and high blood pressure.

Bulimia Nervosa

An eating disorder characterized by binge eating followed by purging, often through vomiting or using laxatives.

Anorexia Nervosa

A psychological and potentially life-threatening eating disorder characterized by an extremely low body weight relative to stature, an intense fear of gaining weight, and a distorted perception of body weight and shape.

Pepsin

An enzyme produced in the stomach that breaks down proteins into peptides during digestion.