The rate at which an employer provides an incentive for an employee to perform (to increase effort) is the:
risk sharing premium.
efficient bargaining solution.
The extra wage that is paid to an individual to attract her to a less desirable job is called:
the benchmark competitive wage.
the general training human capital difference.
the specific training human capital difference.
a compensating differential.
In the benchmark competitive case, the firm will expand the hiring of employees until the marginal revenue product is:
less than the market wage rate.
equal to the market wage rate.
greater than the market wage rate.
the universe of the market wage rate.
A compensation program that includes all performance indicators that influence an employee's output is called the:
efficient bargaining solution.
Dan Heath is the owner of Plain Truth Advertising. He is attempting to design salary systems for his employees, most of whom are sales agents. To get a good system, he needs to recognize the trade-offs between:
benefits and incentives.
risk sharing and benefits.
benefits and salaries.
risk sharing and incentives.
When employees are offered incentives to find new customers but the aggregate economy is so weak (in recession) that the firm loses consumers, then the incentive plan:
is just what was needed in hard times.
must be adjusted to make employees work harder in difficult times.
suffers from the problems of external risks that employees cannot overcome.
must be adhered to no matter what.
The basic incentive problem is that owners and:
employees have similar objectives.
employees have fundamentally different objectives.
employees need government assistance to solve differences.
banks provide funding for growth.
If all issues of effort, output, and pay are fully observable and contactable between an owner and an employee, then:
incentive conflicts can be eliminated.
incentive conflicts remain intractable.
the utility of the employee is unimportant to the outcome.
revenues of the firm are independent of employee effort.
If a firm in a competitive labor market offers less than the market wage rate if it will:
be able to attract a large number of employees because the marginal revenue product is low.
find that it has broken a federal wage law.
attract too few employees.
find that the supply is greater than the demand.
The salary gains from specific training in human capital tend to go to the:
employing firm, not the individual.
federal government in higher taxes.
individual, not the employing firm.
parents since they paid for the education in the first place.
Shot Answer (50-100 words)
What are the factors that favor high incentive pay for an employee? Explain which of the five factors is the most important.
Always Round Tire tries to base its promotions on seniority (where education and training requirements are not necessary). The company finds that this system seems to work most of the time with shop floor supervisors and team managers. However, the system breaks down for higher-level positions. Why?
Some manufacturers that contract with the United States government have most favored nation clauses in their contracts. This provision makes the firm sell to the government at the lowest price it charges to any other customer. On the surface this provision seems to be advantageous to the government because it assures them the lowest price charged to any customer. Others argue, however, that the clause gives manufacturers more power in bargaining with other buyers. Discuss the effect of such clauses on both the government, and other customers, noting, inter alia, the effect on the selling firm’s bargaining power.
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