Jim Range Owns a Best Ice Cream Store, One of 1,000

question 10

Essay

Jim Range owns a Best Ice Cream store, one of 1,000 franchises across the country. Jim doesn't like to work evenings, so he hires Mary Jo Smith to work the store in the evening for $6.50 per hour. Mary Jo's friends come by each evening and she gives them free cones. Is this an adverse selection problem or an incentive problem? What is the solution?

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Definitions:

Capital Goods

Long-lasting goods used in the production of other goods or services, such as machinery, buildings, and equipment.

Consumer Goods

Products that are purchased for consumption by the average consumer.

Capital Goods

Long-lasting goods that are used in the production of other goods or services, such as buildings, machinery, and equipment.

Consumer Goods

Products that are sold directly to consumers for their personal or household use, typically including items like electronics, appliances, and clothing.