Principal-Agent Problems Arise When

question 27

Multiple Choice

Principal-agent problems arise when

• A) the principal negotiates contracts on behalf of the agent.
• B) the agent negotiates contracts on behalf of the principal.
• C) the agent's objectives are different from the principal's objectives.
• D) firm owners (the principals) pay employee wages (the agents) based on race.
• E) workers (the principals) work harder when the firm owners (the agents) increase wages.

Compute fixed costs from total costs and variable costs.

Understand the distinction between accounting profit and economic profit.

Calculate accounting profit using total revenue and explicit costs.

Differentiate between short-run and long-run costs in the context of variable and fixed inputs.

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Definitions:

Informational Social Influence

The process by which an individual changes their behavior to align with the group due to the belief that the group is correct.

Foot-In-The-Door Effect

A psychological principle stating that people are more likely to agree to a large request after first agreeing to a small one.

Individualism

A philosophy that places the freedom of personal actions above the regulation by collective entities or state power.

Deceived

Refers to being misled or fooled into believing something that is not true.