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When the interests of the firm manager differ from that of the firm's workers, what type of problem emerges?

A. the agent-manager problem
B. the principal-agent problem
C. the "hold up" problem
D. the manager-worker problem
E. both answers B & D are correct

1 Answer

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Final answer:

The divergence of interests between firm managers and workers creates the principal-agent problem, where managers may prioritize personal goals over the interests of the owners and firm workers.

Step-by-step explanation:

When the interests of the firm manager differ from that of the firm's workers, the type of problem that emerges is the principal-agent problem. This problem occurs because the managers (agents) who are employed to act on behalf of the owners (principals) may pursue their own interests instead of those of the owners or the firm as a whole. In the context described, if firm workers are considered part of the principal group whose interests should align with the firm's success, any divergence in the manager's interests can lead to decisions that may not favor the workers, leading to conflicts and inefficiencies within the firm.

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