One Argument for Why Subsidiaries Should Be Only Partlyowned by the Parent

question 2

Multiple Choice

One argument for why subsidiaries should be only partlyowned by the parent is:

• A) that the potential conflict of interests between the MNC's managers and shareholders is avoided.
• B) that the potential conflict of interests between the MNC's majority shareholders and minority shareholders is avoided.
• C) that the potential conflict of interests between the MNC's existing creditors is avoided.
• D) to offer some protection against threats of any adverse actions by the host government.

---

Definitions:

Bank Loan

A sum of money borrowed from a bank that must be repaid with interest over a set period.

Diminishing Marginal Product

The principle that as the quantity of a factor of production increases, holding all other inputs constant, the additional output generated by one more unit of that factor will eventually decrease.

Total Cost Function

A mathematical relationship expressing the total cost of production as a function of the quantity of output.

Explicit Costs

Direct, out-of-pocket payments for wages, rent, materials, and other inputs required for the production of goods or services.