The Problem with the Separation of Ownership from Control Is

question 176

Multiple Choice

The problem with the separation of ownership from control is that

• A) the owner in a proprietorship may not always act in the profit-maximizing fashion because he or she may not have the experience or expertise that professional managers have.
• B) the managing partner of a firm may not always behave in the way that other managers would if they were the managing partners.
• C) the managers of the firm can make decisions that reduce the wealth of the owners while not reducing their own wealth.
• D) the owners of firms may not always know the best way to run a firm, yet they are the ones who elect the managers of the firm.

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Definitions:

Upward-Sloping

A scenario where higher levels of a certain variable lead to higher levels of another variable, typically seen in supply curves where higher prices lead to higher quantities supplied.

Tax Incidence

The analysis of the effect of a particular tax on the distribution of economic welfare, focusing on who ultimately bears the burden of the tax.

Externality Analysis

The study of costs or benefits that affect parties who did not choose to incur that cost or benefit, typically used in the context of environmental and public policy.

Public Interest Theory

A theory suggesting that regulation is supplied in response to the demand of the public for the correction of inefficient or inequitable market practices.