The Principal-Agent Problem in Corporations Exists Because the Managers of a Firm

question 27

Multiple Choice

The principal-agent problem in corporations exists because the managers of a firm:

• A) may pursue their own goals even when the result is lower profit for owners.
• B) may know how to operate the business better than absentee owners do, and yet not be allowed to.
• C) are generally unable to do the monitoring that would result in the firm's avoiding moral hazard problems.
• D) are generally unable to do the monitoring that would result in the firm's avoiding adverse selection.
• E) are generally unable to monitor workers, who do not care about the profits due the managers.

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Definitions:

Quantifiable

Capable of being measured or expressed as a numerical value.

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The evolutionary process where organisms rapidly diversify into a multitude of new forms, particularly when a change in the environment makes new resources available.

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The evolutionary history and classification of beetles, a diverse group of insects with a hard exoskeleton and over 350,000 species.

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Rigid external coverings that provide protection to the bodies of certain animals, like mollusks and turtles.