The problem the agent faces when deciding how to keep the agent motivated is called
a. Adverse selection
b. Moral hazard
c. Both of the above
d. None of the above
Question 2
A firm sells 100 . units per week. It charges 15 per unit, the average variable costs are 10, and the average costs are 25 . The firm should
a. Shut-down as the firm is making a loss of 10,00 . per week
b. Shut-down as the firm cannot cover the fixed costs
c. Continue operating as the firm is covering all the variable costs and some of the fixed costs
d. Shut-down because it is cost effective to pay off the remaining fixed costs
