What is the principal-agent problem? What are three ways in which firms try to cope with it?
What will be an ideal response?
The principal-agent problem is the problem of devising compensation rules that induce an agent to act in the best interests of a principal. There are three ways of coping with this problem: Ownership, often offered to managers, gives the agents an incentive to maximize the firm's profits, which is the goal of the owners, the principals; incentive pay links managers' or workers' pay to the firm's performance and helps align the managers' and workers' interests with those of the owners, the principal; long-term contracts tie managers' or workers' long-term rewards to the long-term performance of the firm, encouraging the agents to work in the best long-term interests of the firm owners, the principals.
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A recession begins in July but government policy makers do not reach a consensus that a recession had in fact begun until October. This is an example of a(n)
A) quick time lag. B) recognition time lag. C) effect time lag. D) action time lag.
Search activity ________
A) occurs when there is a surplus of the good B) is unnecessary when a black market exists C) increases when an effective price ceiling is set on a good D) decreases when an effective price ceiling is set on a good
Which of the following statements is true of a monopolist?
a. The firm charges the highest possible price. b. The firm always earns a profit. c. The firm might earn a profit in the long run. d. The firm generates a larger consumer surplus than a perfectly competitive firm. e. The firm is more production efficient than a perfectly competitive firm.
The classical economists believe that prices and wages quickly adjust to keep the economy operating at full employment
a. True b. False Indicate whether the statement is true or false