Managers in a firm hired to improve the firm's profitability and ultimately the shareholders' value will add to the overall costs if they pursue their own self-interests. What does this best illustrate?
A) diseconomies of scale
B) principal-agent problem
C) experience-curve effects
D) information asymmetries

Question

Quizplus · Accepted Answer

The principal-agent problem is a major disadvantage of organizing economic activity within firms, as opposed to within markets. It can arise when an agent such as a manager, performing activities on behalf of the principal (the owner of the firm), pursues his or her own interests.

Managers in a Firm Hired to Improve the Firm's Profitability