Suppose Earnings Are Given by E = $60 + $7(24

question 134

Multiple Choice

Suppose earnings are given by E = $60 + $7(24 − L) ,where E is earnings and L is the hours of leisure.What is the price to the worker of consuming an additional hour of leisure?

• A) $24
• B) $7
• C) $12
• D) $10

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Definitions:

Principal-Agent Problem

A dilemma in economics where one party (the agent) is expected to act in the best interest of another (the principal), but may have personal incentives that conflict with this duty.

Managers

Individuals in an organization responsible for directing the efforts of others and overseeing business operations to achieve certain goals.

Absentee Owners

Absentee owners are individuals or entities that own a business or property but do not actively manage it or live on its premises.

Moral Hazard

A situation where the behavior of an individual or entity changes to take on more risk because they do not bear the full consequences of that risk.