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Unformatted text preview: Chapter 1: Applied problems, 4, 5, and 6, pages 32-33, and Mathematical Exercise #2, page 35. 4 . Explain why it would cost Rafael Nadal or Venus Williams more to leave the professional tennis tour and open a tennis shop than it would for the coach of a university tennis team to do. I would have to say that one cost of opening a tennis shop is the opportunity cost of labor or the forgone salary of other job options. Because Nadals or Williams' foregone income is much higher than that of a university coach, their opportunity cost is higher. 5 . An article in the Wall Street Journal discusses a trend among some large US Corporation to base the compensation of outside members of their boards of directors partly on the performance of the corporation. This growing practice more closely aligns the director to the company. (Some) companies link certain stock or stock-option grants for directors to improved financial performance, using a measure such as annual return on equity. How would such a linkage tend to reduce the agency problems between managers and shareholders as a whole? Why would directors be more efficient than shareholders at improving managerial performance and changing their incentives? How would such a linkage tend to reduce the agency problems between managers and shareholders as a whole? Such a linkage can reduce the agency problem because it more closely ties the directors individually efficient action with...
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This note was uploaded on 09/06/2011 for the course ECONOMICS ECP 5705 taught by Professor Na during the Spring '11 term at Everest University.
- Spring '11