Appendix: An optimal incentives contract can induce the revelation of true costs in a partnership by
a. imposing penalties when costs are overstated
b. offering bonus payments when costs are verified
c. renewing the reliance relationship
d. linking revealed cost to the partner's foregone expected profits
e. enlisting third-party enforcement
d
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If, at its profit-maximizing output level, the price of the good is less than average variable cost, the firm should shut down immediately
Indicate whether the statement is true or false
Normally, whenever the central bank lowers the rate it charges banks for overnight loans market rates of interest:
a. are not affected. b. fall at the same rate. c. increase. d. are unstable.
In economic analysis, the optimal level of pollution
A) is always zero. B) arises at the point at which the marginal benefit from further reduction equals the marginal cost of further reduction. C) occurs at the point at which demand crosses the private cost supply curve. D) should be determined by the private market without any government intervention.
Explain the difference between a positive production externality and a positive consumption externality
What will be an ideal response?