One Method That Businesses Use to Overcome the Principal-Agent Problem

question 74

Multiple Choice

One method that businesses use to overcome the principal-agent problem is to:

• A) not require the board of directors to oversee management.
• B) reward executives and managers who make poor decisions.
• C) incentivize management.
• D) not give employees a stake in the business.

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Definitions:

Price Ceiling

A government-imposed limit on how high a price can be charged for a product or service, intended to protect consumers.

Producer Surplus

Producer surplus is the difference between what producers are willing to accept for a good versus what they actually receive, typically due to market price.

Market Equilibrium

A state where market supply meets market demand, leading to stable prices and quantities.

Producer Surplus

The variance between what producers are prepared to sell a product or service for and the actual revenue they achieve.