Final answer:
The incorrect statement about firms is that labour contracts permanently transfer authority over a worker's activities to a manager. Instead, contracts outline terms of employment and responsibilities without permanently transferring authority.
Step-by-step explanation:
The statement that is incorrect about firms is: b. Contracts for labour permanently transfer authority over an individual's activities from the worker to the manager.
This statement is incorrect because labour contracts do not permanently transfer authority over a worker's activities. Instead, contracts define the terms of employment for a specific period or at-will, and they outline the responsibilities and rights of both the employer and employee.
Indeed, the concept of firm-specific assets such as a good relationship with co-workers can add to a firm's value. Similarly, conflict of interest in firms can arise when managers and workers have different incentives related to profit contributions.
However, asymmetric information is also a well-known issue in firms, where managers may not be fully aware of what workers know or do.
While owners and workers both typically desire the firm's success, their interests may not always align perfectly.
Over time, as a firm becomes established, the need to know managers on a personal level diminishes since information about the firm's performance becomes more available, attracting external investors such as bondholders and shareholders.
These investors provide financial capital based on the perceived success of the firm's strategy and available information, rather than personal relationships with the managers.