On the whole, diversified firms can be profitable up to a certain level of diversification, beyond which the management of highly diversified firms becomes unwieldy

Question

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Research has shown that there is a limit to the degree of diversification that can be effectively managed by a firm's management team. Once a firm becomes too diversified, it may become difficult to coordinate and manage all of its different businesses effectively, which can lead to decreased profitability. Thus, there is an optimal level of diversification for each firm, beyond which further diversification is likely to be counterproductive.

On the Whole, Diversified Firms Can Be Profitable Up to a Certain