Why would a firm knowingly hire lazy employees?
A) Lazy employees have positive marginal revenue product.
B) Lazy employees have successfully sued firms in the past.
C) The Americans with Disabilities Act mandates that laziness be considered a disability.
D) Lazy employees make hard-working employees look good.
QUESTION 2What is one potential problem with offering a choice of contracts to two different employees?
A) If Employee A is paid more than Employee B, Employee A might sue for discrimination.
B) Employee A might be paid less than Employee B, proving statistical discrimination.
C) The two employees might compare salaries without comparing risk-preferences, thereby running the risk of jealousy or claims of discrimination.
D) The two employees might compare risk preferences without comparing salaries, thereby running the risk of jealousy or claims of discrimination.
QUESTION 3If good salespeople are extremely risk averse, then a choice between a fixed-fee contract and a contingent contract
A) avoids a moral hazard.
B) will result in all job candidates choosing the contingent contract.
C) will result in an efficient contract.
D) may not be a good screening device.
QUESTION 4A good salesperson can sell 1,000,000 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 and a 20 commission. Assuming risk-neutral salespersons and no opportunistic behavior, what level must the fixed salary be so that the firm can determine a prospective good salesperson from a poor one?
A) between 0 and 20,000
B) between 20,000 and 200,000
C) greater than 200,000
D) zero
QUESTION 5Firms that seek to avoid hiring lazy workers that assert they are hardworking are trying to avoid
A) adverse selection.
B) moral hazard.
C) screening.
D) signaling.
QUESTION 6One way to prevent workers from shirking is to
A) hire only workers who are predisposed toward shirking.
B) hire only workers who are predisposed toward not shirking.
C) reduce monitoring to zero.
D) pay workers a fixed fee.
QUESTION 7Explain why checks on principals might be necessary.
What will be an ideal response?
QUESTION 8Including an employee representative on the board of directors reduces the possibility of opportunistic employer behavior.
What will be an ideal response?
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