Suppose there is no uncertainty about sales. Firms can avoid hiring lazy workers by :

Suppose there is no uncertainty about sales. Firms can avoid hiring lazy workers by
 
  A) offering contingent contracts.
  B) fixed wage contracts.
  C) engaging in cheap talk.
  D) All of the above.

QUESTION 2

A good salesperson can sell 200,000 worth of goods, while a poor one can sell only a smaller amount worth of goods. Job applicants know if they are good or bad, but the firm does not. A firm will offer job applicants a choice between a fixed salary of 20,000 or a 20 commission. Assume risk-neutral salespersons and no opportunistic behavior. Given that the firm wants to distinguish a prospective good salesperson from a poor one, what should be the sales amount of a poor salesperson?
 
  A) more than 150,000
  B) less than 100,000
  C) more than 100,000
  D) 100,000

QUESTION 3

A good salesperson can sell 100,000 worth of goods, while a poor one can sell only 10,000 worth of goods. Job applicants know if they are good or bad, but the firm does not. A firm will offer job applicants a choice between a fixed salary of 2,000 or a commission on the sale. Assume risk-neutral salespersons and no opportunistic behavior. Given that the firm wants to distinguish a prospective good salesperson from a poor one, what should be the commission on sales?
 
  A) Commission should be larger than 50.
  B) Commission should be larger than 40.
  C) Commission should be between 2 and 20.
  D) Commission should be smaller than 2.

QUESTION 4

To induce an agent to work hard, a principal may offer the agent a bonus, in other words, an extra payment if a performance target is hit. Suppose that the agent's performance is affected by factors beyond the agent's control, for example umbrellas are demanded more on a rainy day. Under what conditions may the bonus not induce the agent to work harder?
 
  A) The agent is very risk averse.
  B) The agent is very risk loving.
  C) The agent is risk neutral.
  D) The principal is risk neutral.

QUESTION 5

A good salesperson can sell 500,000 worth of goods, while a poor one can sell only 100,000 worth of goods. Job applicants know if they are good or bad, but the firm does not. A firm will offer job applicants a choice between a fixed salary of 10,000 or a 10 commission. Assuming risk-neutral salespersons and no opportunistic behavior, can the firm determine a prospective good salesperson from a poor one?
 
  A) Yes, because a poor salesperson will always choose the fixed salary.
  B) Yes, because a good salesperson will always choose the fixed salary.
  C) No, because a poor salesperson is indifferent between the two contracts.
  D) No, because a good salesperson is indifferent between the two contracts.

QUESTION 6

If a firm hires lazy employees,
 
  A) it must pay them differently or hard-working employees will engage in moral hazard.
  B) it must pay them more or hard-working employees will engage in moral hazard.
  C) it must fire them before their laziness spreads to hard-working employees.
  D) the lazy employees make hard-working employees look good.