Which of the following is an example of the monitoring problem?
A) Government fails to stop firms hiring child labor to produce goods.
B) Two firms collude to set the market price, but the government cannot prove this conclusively.
C) The managers of a firm maximize their own salaries to the detriment of maximizing profit for the owner of the firm.
D) A firm does not take into account the air pollution caused by a coal factory when pricing its product.

Question

Quizplus · Accepted Answer

The monitoring problem occurs when there is a conflict of interest between a principal (e.g., owner) and an agent (e.g., manager), and the principal cannot perfectly monitor the agent's actions. In this case, managers prioritize their own salaries over the owner's profit maximization.

Which of the Following Is an Example of the Monitoring