How can a corporation's board of directors and its managers try to reduce the principal-agent problem?
What will be an ideal response?
A corporation's board of directors can try to reduce the principal-agent problem by designing compensation policies for top managers that give them financial incentives to increase profits. A corporation's managers can try to reduce the principal-agent problem by designing compensation policies that give workers an incentive to work harder.
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Why do competitive firms enter the market in spite of the price war threatened by the dominant firm?
Which of the following statements about the elasticity of demand for a monopolist is TRUE?
A) Since a monopolist produces a good with no close substitutes, the price elasticity of demand for the good is zero. B) A monopolist produces a good with demand that is perfectly inelastic because people can not do without the good. C) Since every good has some substitute, even if imperfect, the demand for a good produced by a monopolist will not have zero price elasticity. D) Since the demand curve of a monopolist is downward sloping, the demand for the good must be inelastic.