What Is the Problem with Paying Plant Managers in Multi-Plant

question 102

Multiple Choice

What is the problem with paying plant managers in multi-plant firms according to the level of output they produce?

• A) Managers in low-cost or high-capacity plants could be penalized, in percentage terms, for their overproduction.
• B) The production problem in multi-plant firms is usually how to lower production to increase market power, not how to increase production.
• C) Managers in high-cost or low-capacity plants could be penalized for production constraints over which they have no control.
• D) Managers would have an incentive to understate the productive capacity of their plants.
• E) Managers would have an incentive to overstate the productive capacity of their plants.