The Most Efficient Way to Overcome the Principal-Agent Problem in a Firm

question 78

Multiple Choice

The most efficient way to overcome the principal-agent problem in a firm is to

• A) increase the level of vertical integration within the firm.
• B) provide stock options to managers.
• C) downsize the existing workforce.
• D) organize economic activities within the firm.

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Definitions:

Average Product

A metric that measures output per unit of a variable input, calculated by dividing total production by the quantity of the variable input.

Diminishing Marginal Returns

A principle stating that as additional units of a variable input are added to a fixed input, the additional output produced from each new unit decreases beyond a certain point.

Diminishing Marginal Returns

A principle stating that as investment in a particular area increases, the rate of profit from that investment, after a certain point, cannot increase forever and will eventually decrease.

Marginal Product

The additional output that is produced by adding one more unit of a certain input while holding other inputs constant.