Suppose the principal offers to share a percentage of the profit with the agent. Such a contract
A) will yield the same income for the agent as a hire contract would.
B) is incentive compatible.
C) creates a production inefficiency.
D) would not be acceptable to any agent.
Question 2
In a store that sells souvenirs, suppose an agent receives a 1 commission for each unit sold, and the principal receives the residual profit. As a result,
A) joint profit is maximized.
B) the agent will sell until the principal's marginal cost equals 1.
C) no agent would enter into such a contract.
D) the agent wishes to sell as many units as he can.
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