1- When there are economies of scope between products, will selling off an unprofitable subsidiary which produces one of those products have significant benefits for a firm? Please explain.

2-Dallas-based Southwest Airlines recently announced a 10-year contract that gives pilots a greater opportunity to share in the profits of the airline. According to the terms of the contract, the pilots will receive options to buy 14 million shares of the firm's stock over the next 10 years.

(a) Please explain the impact of this new contract will have on the profits of Southwest Airlines.

(b) What impact will this new contract have on the principal-agent problem for Southwest

airlines. Consider only the information in the question. Your answer should specify who is the principal and who is the agent. You must give an explanation.