Final answer:
The ultimate objective of management, according to the theory of the firm, is to maximize the value of the firm. This includes making strategic decisions around production and cost management to increase profits and market valuation, within the framework of market conditions and regulatory environments. Therefore correct option is A
Step-by-step explanation:
According to the theory of the firm, the management's ultimate objective is to maximize the value of the firm. The theory of the firm describes how a firm, which is an entity that combines various inputs like labor and capital to produce goods or services, behaves and makes decisions. The goal of maximizing the firm's value typically involves decisions around production, cost management, and strategic initiatives that influence the firm's profits and market valuation. While options such as increasing production or diversifying product lines might be part of the strategy to achieve this ultimate goal, they are not the primary objectives in themselves but rather means to the end of value maximization.
It is important to recognize that markets in the real world are rarely perfectly competitive, and large-scale production can lower costs significantly. However, too much market power can lead to a loss of competition, prompting the need for governmental intervention. Thus, within the context of these external constraints and opportunities, firms make strategic decisions that drive towards the objective of maximizing their value.