Question

12.For a firm’s decision-making, the principal-agent problem arises when.

		the principal and the agent have different objectives.
		the agent cannot enforce the principal to manage well.
		there are too many principals but only few agents.
		the agent considers to maximize the firm’s wealth.

13. The estimated regression function of demand for a good is


Q = 20 − 0.5P + 0.02M − 0.1P_R  
where Q is the quantity demanded of the good; P is the price of the good; M is income; P_R is the price of related good.

The coefficient of P_R implies that.

		the good is an inferior good.
		the good and the related good are substitutes.
		the good and the related good are complements.
		the demand on the related good is inelastic.

Answer 1

Answer.)

Q12.) a.) the principal and the agent have different objectives.

the principal-agent problem—the problem of setting the right incentives for an agent under asymmetrical information, when the principal and the agent have different objective functions.

Q13.) the good and the related good are complements.

When price of a complement rises, The overall cost of consumption to consumer also rises since complements are consumed together and hence quantity demanded of the good falls.