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.

Question

Quizplus · Accepted Answer

The criticism is based on the idea that shareholders, who are the owners, are not the decision makers. Instead, managers make decisions and may have different interests than profit maximization.

A Fundamental Criticism of the Traditional Theory of the Firm