Which of the Following Is True of How Agents May

question 7

Multiple Choice

Which of the following is true of how agents may differ from principals?

• A)Agents can diversify the risks more easily.
• B)Agents are more likely to pursue projects with high potential payoffs.
• C)Agents can diversify investments better.
• D)Agents are more averse to risk.
• E)Agents are likely to prefer more emphasis on uncertain incentives than base pay.

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Definitions:

Output

The cumulative production of goods and services by an economy over a given time frame.

External Cost

Costs of a transaction or activity that affect people other than those directly involved in the transaction, often not reflected in the market prices.

Social Cost

The total cost to society of an action, including both private costs borne by individuals and external costs absorbed by others.

Gallon

A unit of volume for liquid measure equal to four quarts, used in the United States and the United Kingdom.