Classify cach statement as either true or false. A tournament compensation scheme is subject to ability risk. Josephina receives the largest bonus because she had the highest sales last month. Jana had the second highest sales and receives the second largest bonus. This is an example of a tournament compensation scheme. Professors who grade on a curve are using a tournament compensation scheme. Answer Bank true false 000
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- What is ability bias, example?Suppose that the expected value of weekly profits for an ice cream shop, before paying the manager, Amy, is where e is Amy's weekly avertime hours. Amy is risk-neutral but incurs a cost for working overtime. Thus, tatal expected surplus is What level of effort maximizes total surplus? The value of overtime that maximizes total surplus is e-hours. (Enter your response rounded to one decimal place.) E(x)=500+10c C(e)=² E(S)-[(x)-C(e).Show the answer in excel
- What sectors of life the loss aversion can be found in? Explain.Suppose you manage a factory with ten workers. Each worker’s output is determined by the equation q = e. Output sells in the market for a price of 40. The firm has fixed cost equal to 800, and variable costs aside from labor are 8 per unit of output. Worker utility is U = w – e2. Suppose you are paying workers a wage equal to bq. What is the profit- maximizing value of b? Suppose that the probability of worker error increases as the worker increases effort, and that worker error results in unusable output. Suppose that the probability of worker error is Pr[Error] = e/10. Then for worker effort level e, expected (usable) output is now determined by the equation E[q] = (1-Pr[Error]) x e. However, the problem is that you cannot detect errors until after the product is shipped to customers, meaning you pay workers for output before you know whether it is usable or not, and you have to refund your customers for unusable output. Demonstrate why you should not pay your workers the same…Some economists maintain that the returns to additional years of education is actually quite small but that there is a substantial “sheepskin” effect whereby one receives a higher salary with the successful completion of degrees or the earning of diplomas (i.e., sheepskins).Explain how the sheepskin effect is analogous to a signaling model.
- What is loss aversion? Group of answer choices The tendency to focus more on the loss than the gain. The tendency of an individual to invest all of their resources to avoid losing. The ability of humans to exercise complete self control in high stakes situations to avoid losing. The temptation company’s face to invest in questionable techniques to avoid losing money.Suppose there are two types of workers. Type 1 workers have a marginal product of labor (MPL) = 1. That is, if a firm hires an extra Type I worker, that worker will produce 1 extra unit of output. Type II workers have a MPL = 2. The firm can sell each extra unit of output for P = $12,000. Firms are unable to identify whether or not a worker is Type I or Type Il unless the worker sends a signal of what type they are. The signal that workers can send is a level of education, e. The firm adopts the following hiring strategy: If e >e* then offer the worker a wage rate equal to $24,000. If e < e* then offer the worker a wage rate equal to $12,000. The cost to Type I workers of getting education level e is $4000*e. The cost to Type II workers of getting education level e is $2000*e. If the firm sets e* = 8, which of the following statements is true? O Type I workers will not get e*, but Type II workers will get e*, which means there is a separating equilibrium. O Neither type of workers will…Adam is offered a performance based wage that will be equal to $4.200 with probability 1/3 or equal to $3,600, with probability 2/3. Adam says that getting $3,500 for certain would be as good as being offered that random wage. Which, of the following sentences, is true? The risk premium he associates with this wage offer is $100. The risk premium he associates with this wage offer is $300. None of the other answers are correct. OThe risk premium he associates with this wage offer is $700. The risk premium he associates with this wage offer is $400.
- Detail the difference between behavioral and non-behavioral economics. Suppose there is a proposal to replace workplace hiring system with a review of applicants’ resume and a skills test, and to eliminate in-person interviews. Given what has been learned about Systems 1 and 2, detail why one would think this hiring method work better or worse than an interview. What might be the pitfalls of relying on each method? In his book 'Blink', Gladwell described examples of situations when System 1 snap intuitive judgements can be more accurate than System 2 decisions? What are 2 examples of such judgements from his book. Should we always trust intuition more than we trust our rational thinking? Or should we trust system 2 more in most other life and work situations?Jim Range is the manager at a USPS office which requires arduous physical labor of their employees. Jim wants to hire an employee. During the interview, Sofia Caster tells Jim that she is a hard worker. But Sofia Caster realizes once she is hired that the federal government and its agencies cannot fire their employees unless their performance is extremely poor. She thus decides to work minimally as a result of this information. The problem was created because of? Misaligned incentives. Moral hazard. A OB c Asymmetric information. OD. The principle agent problem.1. In the signalling model of education, separating equilibria in which education acts as a signal of ability would break down if the costs of acquiring education are equal for individuals with different abilities. Is this true or false? Explain your answer. 2. The utility function of a consumer over two goods x and y is given by u(x, y)20 In x + 2y The price of y is 1. Let p denote the price of x. The consumer has an income of M> 10. The consumer's price elasticity of demand for x has a lower absolute value compared to the income elasticity of demand for y. Is this true or false? Explain by calculating both elasticities.