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.

Question

Quizplus · Accepted Answer

The agent is motivated to sell as many units as possible because their commission is directly tied to the number of units sold, regardless of the cost or profit implications for the principal. This setup incentivizes the agent to maximize sales volume to increase their commission earnings.

In a Store That Sells Souvenirs,suppose an Agent Receives a $1