Figure 17-6 Figure 17-6 Shows Two Different Compensation Schemes for the Vortex

question 18

Multiple Choice

Figure 17-6

Figure 17-6 shows two different compensation schemes for the Vortex Vacuum Cleaner Company.
Under Scheme I, the firm pays a consistent wage of $2,500 per month to all its salespeople for sales up to 20 vacuum cleaners. For sales of 21-30 vacuum cleaners, its salespeople earn $125 per vacuum cleaner, with wages capped at $3,750 per month for sales over 30 vacuum cleaners. If a salesperson has three consecutive months of sales below 20 vacuum cleaners, the person loses his or her job.
Scheme II represents a straight commission, with salespeople earning a commission of $125 per vacuum cleaner sold, with no wage cap.
-Refer to Figure 17-6.Under Scheme I,

• A)workers compete with each other to see who can sell more than 20 vacuum cleaners in the shortest possible time.
• B)workers have no incentive to sell more than 30 vacuum cleaners.
• C)workers signal their productivity to the firm by consistently selling above 30 vacuum cleaners.
• D)the incentive to increase productivity only occurs for sales of fewer than 20 vacuum cleaners or more than 30 vacuum cleaners.

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Definitions:

Cartel Arrangements

Agreements among competing firms to control prices or exclude entry of a new competitor in the market, often resulting in anticompetitive behavior.

Oligopolists

Firms or individuals that control the market for a particular good or service in an oligopoly, where a small number of entities dominate.

Monopoly Power

The ability of a single seller to control market prices and total market output.