One Possible Solution to an Incentive Problem Arising Under Unobservable

question 18

Multiple Choice

One possible solution to an incentive problem arising under unobservable actions is:

• A) pay more and make the worker efficient.
• B) be the boss and fire the inefficient worker and send a signal to others.
• C) buy the agent's right to his total output.
• D) sell the agent the right to the total production.

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Definitions:

Operations Management

The administration of business practices to create the highest level of efficiency possible within an organization, focusing on converting materials and labor into goods and services as efficiently as possible.

Productive Systems

Systems or mechanisms designed to generate outputs at an efficient rate by effectively using inputs.

Transform Resources

Involves altering or developing organizational resources to enhance efficiency or achieve a specific goal.

Operating Efficiencies

The capability of a firm to maximize outputs from given inputs, thereby minimizing its costs.