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It was solely within the 1960s that the neo-classical principle of the agency was significantly challenged by options similar to managerial and behavioral theories. This means that to an extent managers can pursue their own interests. Traditional managerial fashions typically assume that managers, as a substitute of maximising revenue, maximise a simple objective utility function subject to an arbitrarily given revenue constraint . Coase concludes by saying that the size of the agency depends on the costs of utilizing the worth mechanism, and on the prices of organisation of different entrepreneurs. These two factors together decide what number of products a firm produces and how much of each.

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A agency is horizontally broad when it utilises extra indivisible assets to broaden into numerous products, and obtain scope economies. Horizontally broad corporations leverage capabilities such as marketing skills, product knowledge, customer service, and popularity for their expansions. Scope economies, or economies of scope, describes the aspect of production wherein price financial savings end result from the scope of an enterprise, as opposed to the scale .

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