A firm owner wants a manager to make difficult personnel decisions when necessary (which requires firing a worker every now and then) in order to maximize the firm's profits. The manager, however, prefers to not fire anyone. The worker also prefers not to be fired. In this example, who is the principal and who is the agent?
A) The firm owner is the principal. The manager is the agent.
B) The firm owner is the principal. The should-be-fired worker is the agent.
C) The manager is the principal. The firm owner is the agent.
D) The should-be-fired worker is the principal. The manager is the agent.
E) The should-be-fired worker is the principal. The firm owner is the agent.

Question

Quizplus · Accepted Answer

In principal-agent relationships, the principal is the party that delegates work to another, the agent, who then carries out the work. In this scenario, the firm owner (principal) delegates the task of making personnel decisions, including firing workers, to the manager (agent).

A Firm Owner Wants a Manager to Make Difficult Personnel