Which of the Following Conditions Must Hold in Order to Have

question 42

Multiple Choice

Which of the following conditions must hold in order to have a principal-agent problem?

• A)Managers and owners have different objectives for the firm.
• B)It is very costly to oversee every managerial decision to make sure all decisions increase the value of the firm.
• C)Complete contracts effectively restrain managers from making value-reducing decisions.
• D)The objectives of managers and owners are aligned but hidden actions by managers cannot be observed no matter how much is spent on monitoring managers.
• E)both a and b

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Definitions:

General Partner

An owner of a partnership who has unlimited liability and is actively involved in the management of the business.