Resource: University of Phoenix Material: Guillermo’s Furniture Store Scenario

Write no more than a 700-word paper explaining the finance concepts found in the readings and how they relate to the context of the scenario.

Format your paper consistent with APA guidelines.

When someone takes an action, that action eliminates other possible actions. Informally, people often refer to an unused opportunity as an opportunity cost. More precisely, an opportunity cost is the difference between the value of one action and the value of the best alternative.
An opportunity cost provides an indication of the relative importance of a decision. When the opportunity cost is small, the cost of an incorrect choice is small. Similarly, when the opportunity cost is large, the cost of not making the best choice is large.

Suppose you sell a car for $7,200 without much forethought. You find out the next day that the car could have been sold for $7,300. You have incurred an opportunity cost of at least
$100. You might not consider that very significant. But suppose you discovered the next day that the car could have been sold for $9,500. You probably would consider the opportunity cost of $2,300 on an asset worth $9,500 significant.
An important application of the Principle of Self-Interested Behavior is called agency theory.
Agency theory analyzes conflicts of interest and behavior in a principal–agent relationship.
Broadly speaking, a principal–agent relationship is a relationship in which one entity, an agent, makes decisions that affect another entity, a principal.

Moral hazard refers to situations in which the agent can take unseen actions for personal benefit even though such actions are costly to the principal. By carefully analyzing individual behavior, agency theory helps us develop more-effective provisions for contracts between a principal and an