One Argument Against Using a Profit-Sharing Scheme Is the Potential

question 11

Multiple Choice

One argument against using a profit-sharing scheme is the potential for free-riding. In this situation, free-riding refers to

• A) one firm using the same contract specifications as another firm.
• B) a worker not providing effort because his contribution to profit is very small.
• C) a worker not providing effort because he does not want his coworkers' wages to increase.
• D) the firm not honestly reporting its profits.
• E) profits being insensitive to worker effort because all increases in profit are returned to the workers due to the profit-sharing scheme.

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Definitions:

Partnership

A legal form of business operation between two or more individuals who share management and profits.

Business-related Debts

Financial obligations incurred in the course of conducting business activities, such as loans, lines of credit, and other forms of borrowing.

Partnerships

A business structure in which two or more individuals manage and operate a business in accordance with terms and objectives set out in a Partnership Agreement.

Establish

To set up or found something on a firm or permanent basis, especially an organization or institution.