Question

The conflict between the goals of a firm's owners and the goals of its non-owner managers is

A)

the agency problem.

B)

of little importance in most large U.S. firms.

C)

incompatibility.

D)

serious only when profits decline.

Answer 1

The conflict is known as the agency problem and occurs when there's a misalignment between the goals of firm owners and managers, often evident in decisions like factory closures or product launches that don't pan out profitably. This issue is relevant within the freedoms private firms have in a market-oriented economy, such as conducting mergers and setting production strategies.

Step-by-step explanation:

The conflict between the goals of a firm's owners and the goals of its non-owner managers is the agency problem. This issue arises when non-owner managers make decisions that do not align with the owners' goals, such as closing a factory that could have been profitable or starting to sell a product that ends up losing money. Such decisions are within the breadth of choices that private firms have in a market-oriented economy, which include the freedom to expand, set prices, or pursue mergers and acquisitions. However, the agency problem can also surface during mergers between companies, leading to a potentially detrimental clash of corporate personalities. The U.S. government typically approves most proposed mergers, supporting the idea that private firms are generally in the best position to determine actions that attract customers or enhance production efficiency.