When Writing Contracts When Actions Are Unobservable, What Is the Second

question 32

Multiple Choice

When writing contracts when actions are unobservable, what is the second step taken by the principal?

• A) calculating the participation constraint
• B) calculating the incentive compatibility constraint
• C) calculating profits with different amounts of revenue and wages

---

Definitions:

Profitable Stores

Retail or commercial outlets that generate more revenue than the operating and other costs, thereby yielding profit.

Profit Based Compensation

A remuneration strategy where employees' or executives' earnings are directly linked to the profitability of the organization.

Sales Agent

is an individual or company authorized to sell products or services on behalf of a manufacturer or service provider.

Commission

A fee paid to an agent or employee for transacting a piece of business or performing a service, often a percentage of the sale price.