Which One of the Following Statements Is TRUE

question 6

Multiple Choice

Which one of the following statements is TRUE?

• A) An agency cost is the reduction in firm value due to agency conflicts.
• B) An agency cost is the wage required to pay someone who is hired to perform a service.
• C) An example of an agency cost is when the board of directors pays a dividend to shareholders.
• D) An example of an agency cost is when an attorney hires an expert witness for a trial.
• E) The commission required by the Federal Housing Agency for a small business loan is an example of an agency cost.

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Definitions:

Human Brain Modularity

The concept that the human brain operates through distinct regions or modules that specialize in different functions.

Heuristics

The brain’s low-energy mental shortcuts for making decisions. They are “fast and frugal” and work well in most situations but in other situations result in systematic errors.

System 1

This refers to a concept in psychology, specifically in the dual-process theory of thought, where System 1 is the fast, instinctive, and emotional way of thinking.

Availability Heuristic

A cognitive bias where individuals rely on immediate examples that come to mind when evaluating a specific topic, concept, method, or decision.