Fill in the Blanks: _____ Is an Important Constraint in the Moral-Hazard

question 5

Multiple Choice

Fill in the blanks: _____ is an important constraint in the moral-hazard problem because _____.

• A)The budget constraint ----it ensures the principal has enough money to pay the agent
• B)The participation constraint ---it ensures the agent chooses the action in the principal's best interest
• C)The participation constraint ----it ensures the principal is willing to offer the contract
• D)The incentive-compatibility constraint -----it ensures the agent chooses the action intended in the contract

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Definitions:

Direct Labor-Hours

The total hours of labor directly involved in manufacturing products or providing services.

Direct Materials Cost

The cost of raw materials and components that are directly traceable to the finished product.

Activity-Based Costing

An accounting method that assigns costs to products or services based on the activities they require and the resources consumed by these activities.

Direct Labor-Hours

The total hours worked by employees directly involved in the manufacturing process, directly affecting the production of goods.