Which One of the Following Best Exemplifies the Principal-Agent Problem

question 193

Multiple Choice

Which one of the following best exemplifies the principal-agent problem in the employer-employee relationship?

• A) A worker takes 20-minute coffee breaks although the employer allots only 15 minutes for this purpose.
• B) A worker is on the job 50 hours per week although only 40 hours are required for promotion.
• C) A worker opts for early retirement in response to the firm's incentive plan.
• D) A worker's productivity is independent of the wage paid.

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Definitions:

Units of Labor

A measurement in economics indicating the quantifiable effort or work provided by labor forces, often used to determine productivity or cost in production processes.

Capital

Financial assets or the financial value of assets, such as funds held in deposit accounts and/or the physical factories, machinery and equipment used to produce goods.

Profit-Maximizing Amounts

The levels of output or operation at which a business achieves the highest possible profit, determined by analyzing costs and revenues.

Total Outlay

The total amount of money spent or investment made in acquiring an asset, completing a project, or pursuing an activity.