A Membership to a Local Fitness Club Costs $49 Per

question 28

Multiple Choice

A membership to a local fitness club costs $49 per month. The membership includes 20 hours of use of the club. If you want to use the club more than 20 hours per month, it will cost an additional $1.80 per hour. Let C represent the cost of the membership and x represent the number of hours of use of the club. Find and interpret .

• A) The cost of 33 hours of use of the club per month is $49.00.
• B) The cost of 33 hours of use of the club per month is $50.80.
• C) The cost of 33 hours of use of the club per month is $108.40.
• D) The cost of 33 hours of use of the club per month is $23.40.
• E) The cost of 33 hours of use of the club per month is $72.40.

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Definitions:

Moral Hazard

A situation in which one party engages in risky behavior knowing that it is protected against the risk by another party.

Asymmetric Information

A situation where one party in a transaction has more or superior information compared to another, often leading to an imbalance in the transaction.

Small Firms

Businesses often characterized by a small number of employees, limited market share, and possibly locally oriented markets.

Principal-Agent Problem

A situation in economics where there is a conflict of interest between a principal (such as a shareholder) and an agent of the principal (such as a manager), due to the agent having more information.