The principal-agent problem arises when the principal and the agent have differe

Question

The principal-agent problem arises when the principal and the agent have different objectives the principal cannot enforce the contract with the agent or finds it too costly to monitor the agent. the principal cannot decide whether the firm should seek to maximize the expected future profits of the firm or maximize the price for which the firm can be sold both a and b QUESTION 9 1 points Save Answer Which of the following economic forces promotes profitability in the long run? Existence of strong barriers to entry A large number of complementary products A large number of close substitute products. Both a and b All of the above QUESTION 10 1 points Save Answer A price-taking firm can exert no control over price because no other firms make a product that is nearly identical to its product. the firm's demand curve is downward sloping. the firm's individual production is insignificant relative to total production in the industry of a lack of substitutes for the product. QUESTION 11 1 points Save Answer In a perfectly competitive market, firms are price-setters the output sold by a particular firm may be quite different from the output sold by the other firms in the market. it is difficult for new firms to enter the market due to barriers to entry. all firms produce and sell a standardized or undifferentiated product.

Explanation / Answer

Question 8-

The principle agent problem arises when

ANSWER = BOTH A AND B

The principle agent problem is also known as agency delima. This occurs when one person or the agent is able to make decisions on behalf of or that impact. This delima exist in circumstances where the agent is motivated to acting their own best interest which are contrary to those of the principle and is an example of more hazard. Common examples of this relationship encluding corporate management, agent and share holders, principles,or politicians agent and voters. In fact the problem can arise in almost any context when one party is paid by another to do something where the agent has a small or non existing share in the outcome of informal imployment or negotiation deals such as paying for a house hold or job or car repairs. The problem arises when the two parties have got different interest and that is symmetric information. The agent having more information such that the principle cannot directly insure that the agent is always acting in there. The principles best interest particularly when activity that are useful to the principle are costly to the agent and where the elements where the agents desire costly for the principle to observe seen moral hazard and conflict of interest often, the principle may be sufficiently concerned if the possibility of being exploited by the agent that they choose not to enter into the transection at all when it would have been mutually beneficial

Q-9 Which of the following economic forces promotes profitability in the long run?

ANSWER= EXISTANCE OF STRONG BARRIERS TO ENTRY

The factors that affect the profitability firms are given below.

1) Market share

2) Brand image

3) competition

4) product -life cycle

5) Economic growth

6) Exchange rate

7) cost of production.

Some of the factors that will determine the profit of firms are as follows

1) The degree of competition which the firm faces

2) The strength of the demand

3) The state of the economy

4) Advertising

5) Substitutes

6) Relative costs

7) Economics of scale

8) Dynamically efficient

9) Price discrimination

10) Management

11) objectives of the firm's

12) lastly the exchange rate

Question 10-

A price taking firm can exert no control over price because

ANSWER= THE FIRMS INDIVIDUAL PRODUCTION RELATIVE TO TOTAL PRODUCTION IN THE INDUSTRY

Here since a perfectly competitive firm must accept the price for its output as determined by the products market demand and supply it is impossible to choose the price that is charged . Well this is already been determined in the profit equation and the perfectly competitive firm

Can sell any number of units at exactly as the same price.

Question -11

ANSWER= FIRMS ARE PRICE SETTERS

There are 4 market structures.

1- perfect competition

2-Monopolistic competition

3-Oligopoly

4-Vlonopoly

In Economics market refetmrs to the region where buyers and sellers are connected with ACH other to effect the demand and supply of the commodity.

Types of market are

1) perfect competition

A market completetion where there are a large no of buyers and sellers dealing in the homogenous product at a price fixed by market.

CHARACTERESTICS OF PERFECT COMPETETION

1) There are a large no of buyers and sellers of a particular product in the market. No buyers and sellers can change the prevailing price.

2) Each firms operating in a market is a price acceptor and not price decided. The price of the commodity is based on the total demand and supply in the market

3) All the products manufactured by various different firms are homogeneous in nature. It means that the products are identical in terms of their shape, size, quality, colour, packaging etc. And therefore no consumer is able to differentiate the product of different firms.

2) Imperfect competition ( Monopsony, Monopoly etc...)

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