The Principal-Agent Problem Is

question 54

Multiple Choice

The principal-agent problem is:

• A) the disconnect between what an elected leader directs and what bureaucrats do
• B) a new challenge brought about by the elimination of middle management in bureaucracies
• C) easily solved through modern communications technology
• D) all of the above

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Definitions:

Collusion Methods

Strategies used by firms to set prices or output levels by agreement rather than through competition, often to maximize profits illegally or unethically.

Cartels

Coalitions of independent businesses formed to regulate production, pricing, and marketing of goods to maximize collective profits.

Price Leadership

A market situation where one or more dominant firms set the price of goods or services, and other firms in the industry follow suit.

Kinked-Demand Curve Model

An economic theory suggesting that prices become rigid or sticky due to competing firms' responses to price changes.