When is a piece-rate contract generally used?
A) It is used when output but not labor can be observed.
B) It is only used to avoid adverse selection.
C) It is used when labor but not output can be observed.
D) It is never used in practice.

Question

Quizplus · Accepted Answer

A piece-rate contract is generally used when output but not labor can be observed. This type of contract pays workers based on the number of units they produce rather than the number of hours they work. This method is often used in manufacturing, agriculture, and other industries where it is easier to measure output than labor input.

When Is a Piece-Rate Contract Generally Used