The Principal-Agent Problem Arises Because of

question 43

Multiple Choice

The principal-agent problem arises because of

• A) the firm's motive for profit maximization.
• B) the salary differential between management and labourers.
• C) the structure of the market in which the firm operates.
• D) conflicting interests between a principal and an agent.

---

Definitions:

Variance

In statistics, variance is a measure of how far a set of numbers is spread out from their average value. It's key in assessing variability and risk.

Risk Premium

The additional return expected by an investor for taking on a higher level of risk.

Risky Asset

An asset that has a significant degree of uncertainty in its returns, often leading to variability in its investment outcomes.

Normal Distribution

A statistical function that represents the distribution of many types of data; it’s symmetric and describes data that clusters around a mean or average.