Which of the following statements is correct? a. The outcome that maximizes the fully informed principal’s surplus is called the first best. b. The outcome that maximizes the principal’s surplus subject to the constraint that the principal is less well informed is called the second best. c. The outcome that maximizes the principal’s surplus subject to the constraint that the principal is less well informed and to an additional constraint is called the third best. d. All of the above

Which of the following statements is correct? a. The outcome that maximizes the fully informed principal’s surplus is called the first best. b. The outcome that maximizes the principal’s surplus subject to the constraint that the principal is less well informed is called the second best. c. The outcome that maximizes the principal’s surplus subject to the constraint that the principal is less well informed and to an additional constraint is called the third best. d. All of the above

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter17: Making Decisions With Uncertainty

Section: Chapter Questions

Problem 17.6IP

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	a.	The outcome that maximizes the fully informed principal’s surplus is called the first best.
	b.	The outcome that maximizes the principal’s surplus subject to the constraint that the principal is less well informed is called the second best.
	c.	The outcome that maximizes the principal’s surplus subject to the constraint that the principal is less well informed and to an additional constraint is called the third best.
	d.	All of the above.