One of the Ways of Coping with the Principal-Agent Problem

question 241

Multiple Choice

One of the ways of coping with the principal-agent problem is

• A) giving orders.
• B) providing incentive pay.
• C) shirking.
• D) using only short-term contracts.

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Definitions:

Long Run

An economic term referring to a period during which all factors of production and costs are variable, allowing for full adjustment to changes.

Fixed Cost

Costs that do not change with the level of output or sales, such as rent or salaries.

Variable Cost

Expenses that change in proportion to the amount of goods or services produced, like labor and materials.

Diseconomies of Scale

occur when a company or production process becomes less efficient as it scales up, leading to increased average costs per unit.