A Principal-Agent Problem Occurs When

question 52

Multiple Choice

A principal-agent problem occurs when

• A) people are "fooled" by high absolute wages offered by employers.
• B) insurance increases people's willingness to take risks.
• C) an employer cannot fully monitor the employee's work.
• D) a highly productive worker is unable to earn any rent.

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Definitions:

Average Product

The total output produced per unit of a resource employed.

Marginal Product

The extra production resulting from the use of one additional unit of a specific input while holding other inputs steady.

Total Cost

The sum of all costs associated with the production or provision of a good or service, including fixed and variable costs.

Variable Cost

Expenses that vary in relation to the amount of production or operations.