Home » True of False: A principal-agent problems occur when managerial decisions are not consistent with the firm’s shareholders’ interests.

True of False: A principal-agent problems occur when managerial decisions are not consistent with the firm’s shareholders’ interests.

True of False:A. A principal-agent problems occur when managerial decisions are not consistent with the firm’s shareholders’ interests. B. A firm making more than a normal profit may still be experiencing an economic loss. C. An inferior good is a good whose demand decreases as its prices decreases.D. Assuming that crude oil is an input to automobile tires as well as to gasoline, a reduction in the tariff on imported crude oil would likely result in an increase in the number of tires sold but tire prices may increase or decrease. E. Other things remaining unchanged, advertisement would likely make demand for a good more price elastic.F. The cross price elasticity demand for a good with respect to the price of a complementary good is negative.G. When the marginal product of labor is smaller than its average product, marginal cost will be smaller than average variable cost.H. With capital measured along the vertical axis and labor along the horizontal axis the slope of an isoquant is equal to the ratio between the price of capital over the price of labor.I. If the ratio between the price of labor and the price of capital (w/r) is smaller than the ration between the marginal product of labor and the marginal product of capital, the firm should hire more capital.J. Normally the ratio between the price of a variable input and the marginal product of that input is equal to marginal cost.K. When labor is a variable input the product of wage and marginal product of labor is equal to the profit-maximizing price. L. If the price falls below the average total cost the firm may not shut down in the short run. M. When a perfectly competitive firm is producing at its profit maximizing level of output, its MR is equal to price and its MC while it may or may not be making an economic profit. N. The price a profit maximizing monopoly charges is always greater than its marginal cost as well as it MR while it may not be greater than its ATC.O. As new firms enter a monopolistically competitive market, the demand faced by each competing firm becomes more inelastic. P. The long-run equilibrium of a monopoly is characterized by its price being equal to its MR but always greater than its ATC. Q. A monopolistically competitive firm sets its price equal to its MR, while keeping it above MC.R. We say that the long-run equilibrium of a monopolistically competitive firm reflects excess capacity because its MC is not equal to its ATC.S. In a duopoly with a zero marginal cost, according to the Cournot model, at equilibrium the sum of the two firms’ output would be more than 50 percent of the market demand at a zero price. T. In the kinked demand curve model it is assumed that the demand faced by an oligopoly is less elastic when it lowers the price but more elastic when it raises the price.U. A distinguishing characteristic of monopolistically competitive market is price discrimination.V. The general explanation for the relative price stability in an oligopolistic market is the existence of some degree of decision interdependency among the firms in the market

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