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