Asked by Jessica Redding on Jun 27, 2024
Verified
Investment in Musical Acts
Signing new music acts can be highly speculative.Record producers at music studios have to get budget approval before they sign a new act to a recording deal.Most acts perform a tried and true form of popular music in which record sales can be pretty well predicted.However,once they get approval for their budgets,why do producers sometimes sign riskier acts who either flop or "break-out" into the next sensation?
Record Producers
Professionals who oversee and manage the recording process of artists, playing critical roles in the development, recording, and production of music tracks.
Budget Approval
The formal process of validating a financial plan that allocates resources for specific activities or periods.
Break-out
A significant or sudden move, often referring to stocks or products that rapidly gain attention or market share.
- Recognize the practical applications of economic theories in real-world scenarios such as music investments and rental car maintenance.
Verified Answer
MF
milan franciscoJun 29, 2024
Final Answer :
This is a moral hazard issue.Record producers are investing other people's money and so have an incentive to switch to riskier investments once the funding has been secured.If the risky act flops,the company loses the money.If it succeeds,they get credit for discovering the new sound.
Learning Objectives
- Recognize the practical applications of economic theories in real-world scenarios such as music investments and rental car maintenance.