Modern theories of the firm are based on the hypothesis that:
A)employees choose actions which maximize the firm's profits.
B)given any bundle of inputs, the maximum possible output is produced.
C)firms cannot recognize Pareto- preferred organizational forms.
D)employees pursue their own self- interest.

Question

Quizplus · Accepted Answer

Modern theories of the firm, such as the principal-agent theory, often assume that employees (agents) pursue their own self-interest, which may not always align with the goal of maximizing the firm's profits. This contrasts with traditional views that assume employees work solely to benefit the firm.

Modern Theories of the Firm Are Based on the Hypothesis