6A business is considering hiring a legal firm. The marginal benefit of the legal services would be MB = 90 - q, where q is the quantity provided. The marginal cost of providing the legal services for the legal firm are MC = q. There is a potential agency issue in order to record their efforts the legal firm incurs an auditing cost of $15. Similarly, the business incurs monitoring costs of $5. Another issue is that for the supply in legal services to look legitimate, given the less than perfect auditing and monitoring process, the legal firm needs to supply q = 60, otherwise it looks like they are not supplying anything at all (and would be in breach of their contract). What is the total agency cost?

6A business is considering hiring a legal firm. The marginal benefit of the legal services would be MB = 90 - q, where q is the quantity provided. The marginal cost of providing the legal services for the legal firm are MC = q. There is a potential agency issue in order to record their efforts the legal firm incurs an auditing cost of $15. Similarly, the business incurs monitoring costs of $5. Another issue is that for the supply in legal services to look legitimate, given the less than perfect auditing and monitoring process, the legal firm needs to supply q = 60, otherwise it looks like they are not supplying anything at all (and would be in breach of their contract). What is the total agency cost?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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