The reasons for and the consequences of a divorce of ownership from control
In large companies, the people who own the firm (shareholders) are usually different people from the managers who run it day-to-day. This split means managers may chase their own goals instead of maximising profit for owners.
Real World
In 2001, Enron's managers — not its shareholders — ran the firm to inflate their own bonuses, hiding losses until the company collapsed; shareholders lost billions while executives had already cashed out.
Exam Focus
For 'explain' or 'analyse' questions, link the cause (information asymmetry) directly to the consequence (managerial slack or alternative objectives).
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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