Chapter 11 Incentive Pay
1) What happens to the piece rate if there is a ratchet effect?
A) It decreases over time.
B) It increases over time.
C) It is replaced with a time rate.
D) It is replaced with a salary contract.
E) It is only paid to the least productive workers.
Answer: A
Difficulty: 1 Easy
Topic: Piece Rates and Time Rates
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
2) One argument against using a profit-sharing scheme is the potential for free-riding. In this situation, free-riding refers to
A) one firm using the same contract specifications as another firm.
B) a worker not providing effort because his contribution to profit is very small.
C) a worker not providing effort because he does not want his coworkers’ wages to increase.
D) the firm not honestly reporting its profits.
E) profits being insensitive to worker effort because all increases in profit are returned to the workers due to the profit-sharing scheme.
Answer: B
Difficulty: 1 Easy
Topic: Piece Rates and Time Rates
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
3) To pay piece rates in order to elicit effort, it must be the case that
A) the firm can monitor individual worker output.
B) workers refuse to accept a time rate.
C) firms cannot monitor individual worker effort.
D) the production process relies on group work.
E) the firm does not want to maximize profits.
Answer: A
Difficulty: 1 Easy
Topic: Piece Rates and Time Rates
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
4) Piece rates typically
A) encourage greater effort from workers.
B) are more common than time rates.
C) are associated with the worker incurring less risk concerning one’s income.
D) are more common among lower paying jobs.
E) do not reward skill.
Answer: A
Difficulty: 1 Easy
Topic: Piece Rates and Time Rates
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
5) Which one of the following statements best describes profit sharing?
A) It is an equal division of all revenues among workers.
B) It ties pay to the performance of individuals.
C) It is a program that donates profits to the poor.
D) It provides a system by which workers receive a share of the firm’s profits.
E) It discourages free-riding among workers.
Answer: D
Difficulty: 1 Easy
Topic: Piece Rates and Time Rates
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
6) A firm that finds it extremely expensive to monitor the output of each worker will likely pay its workers
A) with piece rates.
B) with time rates.
C) with incentive pay.
D) according to how much each worker produces.
E) on commission.
Answer: B
Difficulty: 2 Medium
Topic: Piece Rates and Time Rates
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
7) Which of the following is not true regarding the incentives different pay structures impose on workers?
A) Piece rates are an option when individual output is easily measured by firms.
B) Tournaments can elicit more effort than a time rate.
C) Worker effort can be a function of the pay structure.
D) Worker productivity is unrelated to the pay structure.
E) Profit sharing is a pay structure designed to elicit more effort from workers, but it can suffer from free-riding.
Answer: D
Difficulty: 2 Medium
Topic: Piece Rates and Time Rates
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
8) Which of the following is not likely to help a firm motivate its workers to put forth more effort?
A) providing a free or subsidized company gym and/or cafeteria
B) installing monitoring equipment
C) providing competitive year-end bonuses
D) implementing a profit-sharing scheme
E) All of these are likely to motivate workers to put forth more effort.
Answer: E
Difficulty: 2 Medium
Topic: Piece Rates and Time Rates
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
9) Under a piece rate pay scheme where all workers face different upward-sloped marginal cost curves for providing effort,
A) all workers will provide the same amount of effort.
B) all workers will produce the same amount of output.
C) all workers will be paid the same amount.
D) workers with higher marginal cost curves for providing effort will produce more output than workers with lower marginal cost curves.
E) workers with higher marginal cost curves for providing effort will produce less output than workers with lower marginal cost curves.
Answer: E
Difficulty: 2 Medium
Topic: Piece Rates and Time Rates
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
10) A piece rate compensation system
A) underemphasizes the quantity of output produced.
B) attracts and benefits the most able workers.
C) inherently hurts minorities.
D) decreases a firm’s productivity.
E) has no disadvantages.
Answer: B
Difficulty: 2 Medium
Topic: Piece Rates and Time Rates
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
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