How is the separation of ownership from control related to the principal-agent problem?
What will be an ideal response?
The principal-agent problem results when an agent pursues his own interests rather than the interests of the principal who hired him. This can be a problem for a corporation because the managers of a firm (the agents) may choose to pursue policies that benefit themselves rather than the firm's stockholders (the principals). Stockholders would benefit from a policy that yields higher profits but managers may consider the policy too risky and prefer to take fewer risks even at the expense of possible future profits. Because most shareholders are divorced from the daily operation of the firm they may be unaware of the choices managers make.
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Measuring "y" on the vertical axis and "x" on the horizontal axis, convexity of indifference curves implies that the MRS of "y" for "x"
A) is decreasing as "x" increases. B) is increasing as "x" increases. C) is constant as "x" increases. D) cannot be calculated for large levels of "x".
What happens to labor supply in the pear-picking market when the wage paid to apple pickers increases?
a. The labor supply will stay unchanged until the wages paid to pear pickers change. b. The labor supply will decrease. c. The labor supply will increase. d. The labor supply may fall or rise, depending on the price of pears.
Real and nominal variables are highly intertwined, and changes in the money supply change real GDP. Most economists would agree that this statement accurately describes
a. both the short run and the long run. b. the short run, but not the long run. c. the long run, but not the short run. d. neither the long run nor the short run.
The statement, "Violent crime has decreased in the last five years," is:
A. obviously wrong and, therefore, cannot be a positive statement. B. normative since it can be answered by simply looking at the facts. C. positive because it is testable. D. not very interesting because all normative issues are of little importance.