One Reason for the Existence of Agency Problems Between Managers

question 14

Multiple Choice

One reason for the existence of agency problems between managers and stockholders is that:

• A) there is a significant degree of separation between management and ownership.
• B) managers know how to manage the firm better than stockholders.
• C) stockholders have unreasonable expectations about managerial performance.
• D) none of the above.

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Definitions:

Long Run

A time period in which all factors of production and costs are variable, allowing for all inputs to be adjusted.

Profit

The financial gain obtained when the revenue from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.

Total Revenue

The gross revenue of a company, being the entire sum of income from goods or services sold, prior to the deduction of any costs.

Marginal Cost

The extra expense associated with the production of an additional unit of a product or service.