Robin and Jeff Own an Unincorporated Hardware Store

question 39

Essay

Robin and Jeff own an unincorporated hardware store.They determine their salaries at the end of the year by using the amount required to reduce the net income of the hardware store to $0.Based on this policy, Robin and Jeff each receive a total salary of $125,000.This is paid as follows: $8,000 per month and $29,000 on December 31.
Determine the amount of the salary deduction.

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Definitions:

Majority Voting

A voting system in which decisions are made based on the majority of votes received, often used in elections and organizational decision-making processes.

Principal-Agent Problem

A scenario in which conflicts of interest arise because the goals of a principal (e.g., a shareholder) do not align with those of an agent (e.g., a company executive).

Moral Hazard Problem

The possibility that individuals or institutions will behave more recklessly after they obtain insurance or similar contracts that shift the financial burden of bad outcomes onto others. Example: A bank whose deposits are insured against losses may make riskier loans and investments.

Adverse Selection Problem

A problem arising when information known to one party to a contract or agreement is not known to the other party, causing the latter to incur major costs. Example: Individuals who have the poorest health are most likely to buy health insurance.