Complete Solutions Manual for Managerial Economics, 6th Edition by Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor ; ISBN13: 9780357748237. Full Chapters included Chapter 1 to 23.
1. Solving Problems with Economics.
2. The One Lesson of Business.
3. Benefits, Costs, and Decisions.
4....
1. Why might performance compensation caps be bad?
a. Different pay rates promote dissent. [A compensation cap is a maximum salary limit; it does
not necessarily produce varied pay rates]
b. Compensation caps can discourage employees from being productive after the cap.
[Correct; at least with regards to salary, the employee is not rewarded for further
productivity beyond the amount that produces the cap value]
c. Compensation caps can discourage employees from being productive before the cap.
[Employees are incentivized to reach the value of the cap, encouraging productivity prior to
its achievement]
d. Both b and c
2. What is a possible consequence of a performance compensation reward scheme?
a. It creates productive incentives. [As pay is tied directly to performance, such a policy may
motivate workers to improve their performance for the additional compensation]
b. It creates harmful incentives. [Such a policy may create incentives to manipulate the
performance indicators or outputs, or view that performance metric exclusive from the
overall interests of the firm]
c. Both a and b [Correct; could produce productive or harmful incentives depending on the
situation and the character of the person being rewarded]
d. Neither a nor b [Performance compensation schemes will produce some kind of incentives]
3. Which of the following is NOT one of the three problem solving principles laid out in Chapter 1?
a. Under whose jurisdiction is the problem? [Correct; this is NOT one of the key problem
solving principles].
b. Who is making the bad decision? [This is one of the key problem solving principles]
c. Does the decision maker have enough information to make a good decision? [This is one of
the key problem solving principles]
d. Does the decision maker have the incentive to make a good decision? [This is one of the key
problem solving principles]
4. Why might it be bad for hotels to not charge higher prices when rooms are in higher demand?
a. Arbitrageurs might establish a black market by reserving rooms and then selling the
reservations to customers. [This black market allows the arbitrageurs to capture the value of
the increased demand rather than the hotels who are providing the rooms as well as creating
a less reliable system for the consumer]
b. Rooms may be rationed. [If demand increases but prices do not, demand for rooms may
exceed supply, forcing the hotel to ration the rooms and turn customers who would have
been willing to pay higher rates away]
c. Without the profit from these high demand times, hotels would have less of an incentive to
build/expand, making the long run scarcity problem even worse. [Such a policy essentially
creates a performance cap on the hotels, limiting their profitability to the number of rooms
rather than overall demand]
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