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-not-be-fired worker is the principal. The firm owner is the agent.

Question

Quizplus · Accepted Answer

In this situation, the firm owner is the principal because they own the company and have the ultimate decision-making authority over personnel and profit. The manager is the agent because they are tasked with carrying out the owner's wishes and making decisions that are in the best interest of the company. The worker, while an important part of the company, is not the principal or agent in this scenario as they do not have decision-making authority or responsibility.

A Firm Owner Wants a Manager to Make Difficult Personnel