A Factory Owner Wants His Workers to Produce as Many

question 39

Multiple Choice

A factory owner wants his workers to produce as many widgets as they can so he pays his workers based on how many widgets they produce. However, in order to make sure that the workers do not rush and produce a large number of poorly made widgets, he checks the widgets at random at various stages of their manufacture. If a defect is found in a widget, the pay of the entire section of the factory responsible for that defect is docked. How is this factory owner seeking to solve the agency conflict problem in this case?

• A)by supplying incentives so the agents act in the way principal desires
• B)by ensuring that all workers co-operate to maximize the gains of their section
• C)by making the agents into principals themselves
• D)by maximizing the information that the principal obtains about the behavior of the agents

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Definitions:

Personal Injury

Physical or psychological harm caused to an individual due to another's negligence or intentional act.

Testify

To give evidence as a witness in a court of law or legal proceeding, which can be done orally or in writing.

Unenforceable

Describes a contract or clause that, due to legal deficiencies, cannot be upheld or enforced by a court.

Exculpatory Clauses

Clauses included in contracts that release one party from liability for harm or damage that might occur, despite negligence or fault.