Managerial Economics: A Problem Solving Approach
5th Edition
ISBN: 9781337106665
Author: Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher: Cengage Learning
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Question
Chapter 1, Problem 1MC
To determine
The reason for the badness of performance compensation caps.
Expert Solution & Answer
Explanation of Solution
The compensation cap refers to the maximum limit on the salary paid. The compensation cap encourages the employees to be productive up to this limit; but it makes the employees less productive beyond the limit or cap value. This is because the employees will not receive any benefit after this limit. Therefore, the compensation cap will affect badly on the productivity of the economy. Thus, option ‘b’ is correct.
Economics Concept Introduction
Compensation cap: Compensation cap refers to the maximum limit on the salary paid to the employees.
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Students have asked these similar questions
When a firm moves from straight-time pay to commission orpiece-rate pay,
the productivity of a firm's employees may
A.
increase as less productive employees leave and those who remain have an
incentive to sell more.
B.
decrease as less productive employees leave and those who remain have no
incentive to sell more.
C.
be affected as the employees assume lower risk for higher pay.
D.
fall as they assume more risk but and have no incentive to sell more.
In order to reduce agency problems, managers may be provided compensation that includes:
Select one:
a. an option to buy the company's stock
on
b. incentive pay for achieving higher sales than last year
c.a fixed salary so managers' pay is not at risk, allowing managers to focus on the
company's business
d. a bonus based on the level of profit achieved during the year
A firm's primary interest when it hires an additional worker is
Group of answer choices
the cost of hiring the additional worker.
how the average output of the firm will be affected by this new worker.
the extra revenue the firm realizes from hiring that worker.
whether or not the new worker gets along with the firm's existing workers.
Chapter 1 Solutions
Managerial Economics: A Problem Solving Approach
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