Ed Was Recently Hired as a Salesman for a National

question 164

Multiple Choice

Ed was recently hired as a salesman for a national consulting firm.His job involves spending a significant portion of his time out of the office visiting prospects and attending conferences.His firm is paying him a wage that is higher than the equilibrium wage,but he receives much of his income in quarterly bonuses based on how much he sells.

• A) The consulting firm is trying to prevent adverse selection with its compensation strategy.
• B) Ed has an incentive to go golfing with his buddies rather than conducting sales meetings.
• C) The consulting firm is responding to the moral hazard problem with its compensation strategy.
• D) Ed should quit this job and take a job where he gets paid an equilibrium wage more frequently.

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