Managerial Economics
5th Edition
ISBN: 9781337681599
Author: Luke M. Froeb; Brian T. McCann; Michael R. Ward
Publisher: Cengage Limited
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Question
Chapter 1, Problem 1MC
To determine
The reason for the badness of performance compensation caps.
Expert Solution & Answer
Explanation of Solution
The compensation cap refers to the maximum limit on the salary paid. The compensation cap encourages the employees to be productive up to this limit; but it makes the employees less productive beyond the limit or cap value. This is because the employees will not receive any benefit after this limit. Therefore, the compensation cap will affect badly on the productivity of the economy. Thus, option ‘b’ is correct.
Economics Concept Introduction
Compensation cap: Compensation cap refers to the maximum limit on the salary paid to the employees.
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