Which of the Following Would Be Best Considered to Be

question 9

Multiple Choice

Which of the following would be best considered to be an agency problem in the behaviour of the following financial managers?

• A) Michael chooses to enhance his firm's reputation at some cost to its shareholders by sponsoring a team of athletes for the Special Olympics.
• B) Bill chooses to pursue a risky investment for the company's funds, because his compensation will substantially rise if it succeeds.
• C) James ignores an opportunity for his company to invest in a new drug to fight Alzheimer's disease, judging the drug's chances of succeeding as low.
• D) Sue instructs her staff to skip safety inspections in one of the company's factories, knowing that it will likely fail the inspection and incur significant costs to fix.

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Definitions:

Government Subsidy

Financial assistance given by the government to individuals, businesses, or institutions to support or encourage certain economic activities.

Supply

The total amount of a good or service available for purchase at any given price level, within a specified period.

Law of Demand

A fundamental economic principle stating that as the price of a product decreases, demand for it usually increases, and vice versa.

Surpluses

Situations in which the quantity of a good or service supplied exceeds the quantity demanded at the current price.