1.)K works in a branch where all the professional inside sales people are paid a salary plus commission. The commission is based on total gross margin produced by the branch. K decides that a good commission can be earned without putting in a lot of effort. Because of the inside sales setup, K is slow to answer the phones, takes frequent breaks and long lunches. The other sales people pick up the slack. Sales and gross margin have been increasing at the branch mostly due to the extra effort of the other sales people. K is able to see an increase in compensation because of the increased gross margin generated by the branch. This is an example of what type of agency cost?

a.Adverse selection

b.Shirking

c.Moral hazard

d.Stealing

e.None of the above.

2.)

A few years ago, P made a great deal of money by granting a large number of risky mortgages knowing full well that he would not bear the risk if the mortgages defaulted. This is an example of what type of agency cost?

a.Shirking

b.Moral hazard

c.Stealing

d.None of the above.