Asked by Kennedy Kaiser on May 01, 2024
Verified
Residual loss, as an agency cost, refers to:
A) the costs incurred by the agent when implementing assurances that they are acting in the principal's best interests.
B) the costs incurred by the principal in observing, evaluating and controlling the agent's behaviour.
C) the amount by which the marginal cost is less than the expected benefit of additional monitoring and bonding.
D) the amount by which the marginal cost exceeds the expected benefit of additional monitoring and bonding.
Residual Loss
Losses that remain after all efforts have been made to recover or mitigate the loss, often related to asset disposal or impairment.
Agency Cost
The costs arising from conflict of interest between principals (owners) and agents (managers), including monitoring expenditures and the costs of structuring operations to minimize issues.
Marginal Cost
The cost incurred by producing one additional unit of a product or service.
- Gain insight into the factors and outcomes of agency costs, covering monitoring and bonding expenditures, in addition to residual damages.
Verified Answer
KF
Kathy FellowsMay 01, 2024
Final Answer :
D
Explanation :
Residual loss as an agency cost refers to the amount by which the marginal cost exceeds the expected benefit of additional monitoring and bonding. This occurs when resources are spent on monitoring and bonding but still do not fully align the interests of the agent and principal, resulting in a loss for the principal.
Learning Objectives
- Gain insight into the factors and outcomes of agency costs, covering monitoring and bonding expenditures, in addition to residual damages.