Most workplaces are subject to federal minimum wage guidelines, but restaurants are not. Currently, restaurant owners are required to pay waiters and waitresses only $2.13 per hour, provided that those servers are eligible to receive tips. a. How might this pay scheme (low minimum plus tips) resolve a principal-agent problem for restaurant owners? Tipping psychologically benefits restaurant owners, who otherwise would feel guilty about the low wages they pay servers. incentivizes servers to provide poor quality service since customers are required to tip. eliminates the need for restaurant owners to pay servers a livable wage. O incentivizes servers to provide good service, strengthening the restaurant's reputation. b. Why might this pay scheme backfire by creating a different principal-agent problem for restaurant owners? A possible problem is that tipping narrows the pool of job candidates seeking restaurant work. servers may be tempted to fraternize with wealthy patrons, who are likely to tip more, undermining efficiency. servers may be tempted to recommend expensive meals to customers, since tips are usually computed as a percenta of the check. servers may be tempted to provide free dishes or drinks to customers at the expense of the restaurant owner.
Most workplaces are subject to federal minimum wage guidelines, but restaurants are not. Currently, restaurant owners are required to pay waiters and waitresses only $2.13 per hour, provided that those servers are eligible to receive tips. a. How might this pay scheme (low minimum plus tips) resolve a principal-agent problem for restaurant owners? Tipping psychologically benefits restaurant owners, who otherwise would feel guilty about the low wages they pay servers. incentivizes servers to provide poor quality service since customers are required to tip. eliminates the need for restaurant owners to pay servers a livable wage. O incentivizes servers to provide good service, strengthening the restaurant's reputation. b. Why might this pay scheme backfire by creating a different principal-agent problem for restaurant owners? A possible problem is that tipping narrows the pool of job candidates seeking restaurant work. servers may be tempted to fraternize with wealthy patrons, who are likely to tip more, undermining efficiency. servers may be tempted to recommend expensive meals to customers, since tips are usually computed as a percenta of the check. servers may be tempted to provide free dishes or drinks to customers at the expense of the restaurant owner.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:23 >
Most workplaces are subject to federal minimum wage guidelines, but restaurants are not. Currently, restaurant owners are
required to pay waiters and waitresses only $2.13 per hour, provided that those servers are eligible to receive tips.
a. How might this pay scheme (low minimum plus tips) resolve a principal-agent problem for restaurant owners?
Tipping
O psychologically benefits restaurant owners, who otherwise would feel guilty about the low wages they pay servers.
incentivizes servers to provide poor quality service since customers are required to tip.
eliminates the need for restaurant owners to pay servers a livable wage.
O incentivizes servers to provide good service, strengthening the restaurant's reputation.
ΟΟΟΟ
b. Why might this pay scheme backfire by creating a different principal-agent problem for restaurant owners?
A possible problem is that
tipping narrows the pool of job candidates seeking restaurant work.
servers may be tempted to fraternize with wealthy patrons, who are likely to tip more, undermining efficiency.
servers may be tempted to recommend expensive meals to customers, since tips are usually computed as a percentage
of the check.
servers may be tempted to provide free dishes or drinks to customers at the expense of the restaurant owner.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education