Which Are Social Costs Associated with the Inability of Shareholders

question 17

Multiple Choice

Which are social costs associated with the inability of shareholders to observe an executive's effort? (You may choose more than one.)

• A)Excessive insurance offered.
• B)The executive has to be exposed to risk to induce effort,and risk is costly.
• C)The executive ends up exerting less than first-best effort.
• D)Excessive effort induced.

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Definitions:

Profit-maximizing

The process or strategy of adjusting production and sales to achieve the highest possible profit.

Payment to Labor

Compensation provided to workers for their labor, which can be in the form of wages, salaries, or benefits, for their contribution to production processes.

Marginal Revenue Product

The additional revenue generated by employing one more unit of a factor of production, holding all other inputs constant.

Marginal Product

The increase in output that results from employing one more unit of a specific input, while holding other inputs constant.