QUESTION 1 When a home in Nashville went up for sale, the person interested in buying...
QUESTION 1
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When a home in Nashville went up for sale, the person interested in buying a home wanted to have the house inspected. The person selling the home encouraged the buyer to inspect the house before the sale is final. Which statement is true?
a. The buyer is signaling.
b. None of the above.
c. The seller is screenning.
d. The buyer is trying to solve the problem of adverse selection.
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QUESTION 6
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The types of problems in principal-agent relationships typically include:
a. Adverse selection - whom to hire
b. Moral hazard - how to motivate workers
c. Uncertainty - how many workers will be needed
d. A and B
e. A, B and C
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QUESTION 8
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You are an owner of a popular restaurant chain, and you are thinking about franchising additional stores. Which of the following approaches would be best at controlling incentive conflicts?
a. Offer a fixed payment to the franchisee, and monitor the store? (issues of: shirking, adverse selection, and monitoring costs).
b. Profit-sharing contract and conducting some monitoring (issue with some shirking and some risk compensation).
c. Mix of fixed payment and incentive compensation.
d. Let franchisee keep all profit above the franchise payment but do not monitor (must compensate agents for bearing risk).
Homework Answers
Ans) the correct option is d) The buyer is trying to solve the problem of adverse selection.
Ans) the correct option is d) A and B
Ans) the correct option is b) Profit-sharing contract and conducting some monitoring (issue with some shirking and some risk compensation).
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