Question

An internal study at Mimeo Corporation—a manufacturer of low-end photocopiers—revealed that each of its workers assembles three photocopiers per hour and is paid $6 for each assembled copier. Although the company does not have the resources needed to supervise the workers, a full-time inspector verifies the quality of each unit produced before a worker is paid for his or her output. You have been asked by your superior to evaluate a new proposal designed to cut costs. Under the plan, workers would be paid a fixed wage of $16 per hour.

a. No - even if workers continue to assemble three photocopiers per hour, the fixed wage will increase costs.

b. Yes - costs per worker hour are reduced from $18 (= $6 x 3) to $16 with the fixed wage.

c. Yes - workers will likely assemble more photocopiers under the fixed wage.

d. No - the fixed wage gives workers no incentive to work hard.

Answer 1

d. No - the fixed wage gives workers no incentive to work hard.

(With the fixed wage though the cost per worker would reduce from $18 to $16 but workers would not be motivated to work hard. So, this proposal might end up increasing the cost.)