A. Firms often pay managers a percent of profits to encourage them to work longer hours for
Question:
A. Firms often pay managers a percent of profits to encourage them to work longer hours for the company. Managers are often conflicted by the desire for extra income and the reduction of leisure time for family and personal enjoyment. Consider the following example. When the manager is paid a salary of $100,000 without a share of profits, she spends the minimum required time at work and maximizes her leisure time. When the manager is paid $100,000 plus a small percent of profits, she increases the time spent at work. Her average income increases to $120,000. Can you tell from this example whether the manager has shown a preference for the second compensation scheme? If so, has the company benefited from the second compensation scheme?(8marks) B. Explain the differences between economies of scale, economies of scope, and cost complementarity. Provide one example of each.(12marks)
Organizations Behavior, Structure, Processes
ISBN: 978-0078112669
14th Edition
Authors: Gibson, Ivancevich, Donnelly, Konopaske