The problem of asymmetric information in multi-plant firms involves:
A) only the problem of how to get managers to produce as much as possible.
B) only the problem of how to get managers to produce the amount the larger firm wants them to, whether it be a lot or a little.
C) both the problem of how to get managers to produce the appropriate amount and the problem of how to get them to accurately report their capacity.
D) both the problem of how to get managers to produce the appropriate amount and the problem of how to get them to not sell that output outside of the firm.
E) both the problems of vertical and horizontal integration with the rest of the firm.

Question

Quizplus · Accepted Answer

Asymmetric information in multi-plant firms creates two main problems: first, how to incentivize the managers to produce the appropriate amount of output for the firm as a whole, and second, how to ensure that the managers accurately report their capacity levels to the central management. Option C reflects both of these issues. The other answer choices do not fully capture the complexities of the problem.

The Problem of Asymmetric Information in Multi-Plant Firms Involves