Suppose you are hiring a contractor to remodel your kitchen. One contractor offers a fixed price...

 

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Suppose you are hiring a contractor to remodel your kitchen. One contractor offers a fixed price for the complete job, while a competing contractor offers a cost-plus offer where you are billed a multiple of the contractor's cost of materials. The offers are summarized in the following table: Contract Type Fixed-Price Cost-Plus Contract Description The contractor will charge to $15,000 remodel the entire kitchen, which includes the materials and labor costs. The contractor will charge the sum of the labor and materials costs multiplied by 1.35. Suppose that the contractor incurred $6,300 in labor and materials costs. Under the Fixed-Price contract, the profit to the contractor is . Meanwhile, the profit to the contractor under the Cost-Plus contract is If the labor and material costs were to increase above $6,300, then the profit to contractor under the Fixed-Price contract will Meanwhile, the profit to the contractor under the Cost-Plus contract would Under which contract type would a contractor have an incentive to use substandard materials and less competent labor? Suppose you are hiring a contractor to remodel your kitchen. One contractor offers a fixed price for the complete job, while a competing contractor offers a cost-plus offer where you are billed a multiple of the contractor's cost of materials. The offers are summarized in the following table: Contract Type Fixed-Price Cost-Plus Contract Description The contractor will charge to $15,000 remodel the entire kitchen, which includes the materials and labor costs. The contractor will charge the sum of the labor and materials costs multiplied by 1.35. Suppose that the contractor incurred $6,300 in labor and materials costs. Under the Fixed-Price contract, the profit to the contractor is . Meanwhile, the profit to the contractor under the Cost-Plus contract is If the labor and material costs were to increase above $6,300, then the profit to contractor under the Fixed-Price contract will Meanwhile, the profit to the contractor under the Cost-Plus contract would Under which contract type would a contractor have an incentive to use substandard materials and less competent labor?

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Under the FixedPrice contract the contractor will charge 15000 for the complete job regardless of th... View the full answer