What Does the Agency Problem Refer To

question 76

Multiple Choice

What does the agency problem refer to?

• A)The conflict that exists between the board of directors and the employees of the firm.
• B)The problem associated with financial managers and Internal Revenue agents.
• C)The conflict that exists between stockbrokers and investors.
• D)The problem that results from potential conflicts of interest between the manager of a business and the stockholders.
• E)None of the above.

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Definitions:

Average Variable Cost

The total variable costs divided by the quantity of output produced.

Perfectly Competitive

A market structure characterized by many buyers and sellers, identical products, and free entry and exit, leading to price determination by supply and demand.

Market Price

The ongoing value for buying or selling a product or service in the free market.

Shut Down

A short-term decision by a firm to cease production when marginal revenue does not cover variable costs, differing from going out of business, which is a long-term decision.