Explain how stock options can ensure compatibility between the interest of stockholders and managers
When the price of the company's stock goes down, stock options are not used. Thus, the owner of the option loses only what was paid for the option, if anything. But if the price of the stock rises, the owner can make a profit by "exercising the option." If stock options are granted to a corporation's management under appropriate rules, they may well be a powerful way to deal with the principal-agent problem in corporations. If managers who own stock options work harder to make the company successful, their actions can raise the market price of the corporation's stock, thereby benefiting the stockholders as well as themselves.
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Suppose that Country A has an absolute advantage over Country B in the production of both wheat and cloth. The opportunity cost of 1 unit of wheat is 2 units of cloth in Country A and 3 units of cloth in Country B. It follows that production of both wheat and cloth will be maximized if
a. Country A specializes in cloth. b. Country A specializes in wheat. c. Country A produces both goods. d. both countries produce both goods.
Show how a monopolist maximizes its profit. Explain your graph.
What will be an ideal response?
In the Central Utah Project, the water delivered from dams to users
a. is very well utilized, because planners allocated water to its highest valued uses and users. b. cannot generally be traded, so is often wastefully used in low-valued uses. c. is often sold to water-short cities by farmers who can then enjoy a profit from the sale. d. is very expensive to the users who get it.
Sally is on her college golf team and only uses Titleist golf balls. She states: "I don't care what the price is, I will only buy Titleists." Is this a believable assertion?