Suppose the principal offers to share a percentage of the profit ...

[waynest]

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.

[joechoochoy]

Answer to Question 1

B

Answer to Question 2

D