Which of the following compensation schemes can be explained as an attempt to solve a principal-agent problem?
A) Real estate agents are paid on a strict commission basis; if they don't sell a client's listed property they don't get paid.
B) Personal injury lawyers often work on a contingency basis. If the lawyer wins the case they receive a significant share of the award; if the lawyer doesn't win the case the lawyer doesn't get paid.
C) Traveling sales people, who are costly and difficult to monitor, generally receive a significant share of their compensation in the form of commissions or bonuses for meeting sales targets.
D) All of the above compensation schemes attempt to solve a principal-agent problem.
Question 2
Suppose that initially the price of a bag of jellybeans is 6, and the price of a bottle of cola is 2. If the price of a bottle of cola increases, then the relative price of jellybeans
A) increases.
B) decreases.
C) stays the same, but the relative price of cola increases.
D) stays the same, but the relative price of cola decreases.
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