A Constraint in a Contract, Which Ensures the Agent Is

question 35

True/False

A constraint in a contract, which ensures the agent is better off taking the contract and joining the firm rather than not, is called the participation constraint.

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Definitions:

Operating Leverage

A measure of how sensitive a company's operating income is to a change in its sales volumes, reflecting the proportion of fixed costs in a company's cost structure.

Financial Break-Even

The point at which total revenues equal total costs and expenses, resulting in neither profit nor loss.

Salvage Value

The estimated residual value of an asset at the end of its useful life.

Cash Break-Even

The point at which a business's cash inflows equal its cash outflows, excluding financing or investment income.