Figure 14.5 Figure 14.5 Shows Two Different Compensation Schemes for the Safelite

question 47

Multiple Choice

Figure 14.5

Figure 14.5 shows two different compensation schemes for the Safelite Glass Corporation, an installer of auto glass windshields. Under Scheme I, the firm pays a consistent wage of $160 per day based on an 8-hour workday. Qmᵢn represents the cut-off point under the hourly-wage system: if a worker installed fewer than Qmᵢn windshields, the worker got fired. Scheme II represents a piece-rate scheme with an earnings floor: no worker would get less than $160 per day (for an 8-hour workday) and would have to produce at least Qmᵢn. For any output level beyond Q* the worker earned an additional $20 for each unit produced.
-Refer to Figure 14.5.Which of the following statements about Scheme II is false?

• A)It is likely to draw highly productive workers who see the opportunity to increase their wages.
• B)It could discourage less productive workers and induce them to leave the firm.
• C)It allows workers to increase their daily wage without penalizing those who are content with their daily wage.
• D)It is more risky for senior employees.

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Definitions:

Interest

The cost of borrowing money or the payment received for the investment of money, typically expressed as a percentage of the principal.

Maturity Value

Maturity Value is the amount payable to an investor at the maturity date of a financial instrument, typically including the principal and the interest.

Note Receivable

A written promise to pay a specified amount, usually interest-bearing, that is recognized as an asset on the lender's balance sheet.

Promissory Notes

Written promises to pay a specified sum of money to a certain person or entity at a defined time or on demand.