A Factory Owner Wants His Workers to Produce as Many

question 12

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 during 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:

Sample Survey

A method of collecting data by selecting a subset of individuals from a population to estimate characteristics of the whole population.

Double-Blind Experiment

An experimental method in which neither the participants nor the experimenters know who is receiving a particular treatment, to prevent bias.

Double Blind

An experimental design where neither the participants nor the experimenters know who is receiving a particular treatment, preventing bias in research results.

Explanatory Variable

A factor in a statistical model that is believed to cause or influence changes in a response variable.