In a principal-agent problem, if the contract used leads to the maximum of the principal's and agent's combined value (profits, payoffs), we can say that this contract features
A) inefficiency in production, since only the principal's profits should be maximized.
B) inefficiency in production, since only the agent's payoffs should be maximized.
C) efficiency in production.
D) inefficiency in production, since the agent's payoffs should be maximized and the principal's profits should be minimized.
C
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One assumption of the perfectly competitive model is free entry and exit. This assumption most directly leads to the implication that:
A. firms will compete on the basis of better service rather than lower prices. B. positive economic profit is only possible in the short run. C. firms will have to spend money on advertising. D. a long-run equilibrium cannot be achieved.
Which is not one of the four basic questions used by economists to break down problems?
A. What do others think? B. What are the trade-offs? C. How will others respond? D. Why isn't everyone already doing it?
Externalities cause the market mechanism to allocate goods and resources inefficiently because
a. nonconsenting third parties are generally not hurt by externalities. b. producers and consumers ignore signals given by the competitive market. c. prices are always higher than they should be. d. competitive markets fail to give producers and consumers correct price signals.
Between 1990 and 2007 our trade deficit
A. decreased substantially. B. remained about the same. C. almost doubled. D. more than quadrupled.