A Factory Owner Wants His Workers to Produce as Many

question 23

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 principal-agent 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 behaviour of the agents
• E)by using quality control techniques

Analyze scenarios involving firm efficiency and peak operating points.

Explain the relationship between total revenue, total cost, and profit maximization.

Comprehend the role of marginal cost in determining a firm's operational efficiency and supply decisions.

Understand the concept of perfect competition and the behavior of firms within such market structures.

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