Because of the Worsening Economic Situation, Your Firm Needs to Drastically

question 15

Multiple Choice

Because of the worsening economic situation, your firm needs to drastically cut back, and downsize up to 40% of its workers. The firm has a reputation and tradition of being a firm that rewards the good skills and loyalty of its workers, and many have been with your firm for more than 30 years. The firm has been in your family for more than 100 years, and you are the 3^rd generation CEO. Frankly, what would help the most is to lay off all of those workers who are earning in excess of $80,000/year, retaining those who are earning between $40,000 and $50,000/year. That would reduce your overhead dramatically (and your health insurance costs) . But almost all of the workers who earn in excess of $80,000 are age 50 or over, and unlikely to ever find comparable jobs elsewhere. Which of the following options would be consistent with your firm's core values and its long-term survival? ​

• A)downsize all workers making in excess of $80,000/year; since salary is the only consideration, the action is legal
• B)offer significant early retirement packages in exchange for a waiver of claims to workers earning in excess of $80,000/year; it may cost you in the short term, but it is consistent with your family's legacy and the firm's core values, and ultimately will help the firm's long-term survival
• C)do a targeted review of the skill sets of all employees, including those earning less than $80,000/year, to determine where there is an overlap and you can afford to let people go without damaging the firm's knowledge and skill base; downsize the people who are earning the most in each skill set, whatever their ages
• D)either b or c might be consistent with your core values and long-term survival

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Definitions:

Producer Surplus

The discrepancy between the price at which producers are inclined to sell a product and the actual price they get, frequently viewed as an indicator of the well-being of producers.

Tax

A mandatory monetary fee or a different kind of tax placed on an individual or entity by a government agency.

Producer Surplus

The gap between the minimum amount that sellers are prepared to accept for a product or service and the higher price they actually get.

Consumer Surplus

The deviation between what consumers intend and are able to spend on a good or service compared to their final payment.