Question 1

refer to the diagram below. All points along the ray 0P reflect a constant proportion of wages to fringe benefits.

-Given isoprofit line 1,this worker's wage-fringe optimum is given by point:

Accepted Answer

The worker's wage-fringe optimum is determined by the point where the isoprofit line is tangent to the worker's indifference curve, which is typically represented by point B in such diagrams.

Question 2

If a firm can offer fringe benefits worth more than one dollar for a one dollar reduction in wages:

Accepted Answer

If the firm can offer fringe benefits worth more than one dollar for a one dollar reduction in wages, it means that the marginal rate of substitution (MRS) between wages and fringe benefits is less than one. This is because the firm can reduce its wage bill by one dollar and compensate its employees with fringe benefits worth more than one dollar. As a result, the wage-fringe isoprofit line will have a slope less than one in absolute value. The slope will be negative, indicating that the firm is willing to offer more fringe benefits as wages decrease.

Question 3

The firm's wage-fringe isoprofit curve typically has a slope less than 1 (absolute value)because:

Accepted Answer

C

Question 4

The trend of fringe benefits as a percentage of total compensation can be partially explained by the fact that:

Accepted Answer

Firms may be able to purchase fringe benefits more cheaply than workers due to economies of scale or negotiations with suppliers, which means that offering fringe benefits as part of compensation can be a cost-effective strategy for the company. This can result in a higher percentage of compensation being allocated to fringe benefits.

Question 5

Fringe benefits currently account for approximately what percentage of total compensation?

Accepted Answer

Fringe benefits typically account for approximately 25% to 30% of total compensation, reflecting the additional non-wage compensations provided to employees.

Question 6

One view of the firm is that stockholders hire managers who,in turn,hire workers.Maximum profits are earned by satisfying the customer.The two principal-agent relationships illustrated in this view are:

Accepted Answer

This view of the firm suggests that the principal-agent relationships are between the stockholders and the managers, and between the managers and the workers. The goal is to maximize profits by satisfying the customer. Therefore, the best choice is D, which includes both the stockholder-manager and the manager-worker relationships.

Question 7

The share of fringe benefits in total employee compensation:

Accepted Answer

According to data from the Bureau of Labor Statistics, the share of fringe benefits in total employee compensation grew steadily from 1960 through the mid-1990s. This trend has since slowed down, but fringe benefits still make up a larger share of employee compensation than they did in the past.

Question 8

The proportion of total compensation paid out as fringe benefits tends to be larger in:

Accepted Answer

High-paid industries tend to provide a larger proportion of fringe benefits as part of their compensation packages to attract and retain skilled workers.

Question 9

refer to the diagram below. All points along the ray 0P reflect a constant proportion of wages to fringe benefits.

-Which one of the following events could not have caused a shift from isoprofit line 1 to line 2?

Accepted Answer

The government began to subject some fringe benefits to the personal income tax. This would make fringe benefits less attractive to workers, and therefore would not cause a shift from isoprofit line 1 to line 2.

Question 10

As a percentage of benefits,the largest share goes to:

Accepted Answer

The answer of As a percentage of benefits,the largest share...

Question 11

Fringe benefits will tend to be a greater proportion of total compensation,the:

Accepted Answer

Fringe benefits will be a greater proportion of total compensation if they are more income elastic, meaning that as income increases, the demand for fringe benefits increases at a higher rate.

Question 12

The slope of a wage-fringe isoprofit curve reflects:

Accepted Answer

The slope of a wage-fringe isoprofit curve reflects the relative "price" of fringe benefits compared to wages. This means that it shows how much a company values a dollar of fringe benefits compared to a dollar of wages. A steeper slope indicates that the company values fringe benefits more highly, and a flatter slope indicates that the company values wages more highly.

Question 13

refer to the diagram below. All points along the ray 0P reflect a constant proportion of wages to fringe benefits.

-If the isoprofit line shifts from line 1 to line 2,then:

Accepted Answer

The shift from line 1 to line 2 in an isoprofit line scenario typically indicates a change in the trade-off between two factors (in this case, wages and fringe benefits) while maintaining the same level of profit. If the firm can move to line 2 and provide more fringe benefits without changing the wage rate, it suggests that the new line (line 2) represents a set of combinations of wages and fringe benefits that are more efficient or cost-effective for maintaining the same profit level. This does not inherently mean that providing more fringe benefits reduces profit (as suggested in option D) or that wages must be adjusted in a specific way (as suggested in options A and B); rather, it indicates a change in the efficiency or possibilities for the firm's compensation strategy while maintaining profit levels.

Question 14

"Total compensation" includes:

Accepted Answer

Total compensation includes all forms of compensation that an employee receives, including wages and salaries as well as any fringe benefits, such as health insurance, retirement benefits, and paid time off. This includes both legally mandated benefits, like Social Security or workers' compensation, as well as nonmandatory benefits, such as bonuses or stock options. Total compensation is often used as a way to compare the value of an employee's compensation package, as it takes into account both cash and non-cash benefits.

Question 15

Which one of the following is not a valid explanation for why workers may prefer an extra dollar's worth of fringe benefits to an extra dollar's worth of cash?

Accepted Answer

The statement "people generally prefer in-kind benefits to cash" is not a valid explanation as it is too broad and does not provide any specific reasons why workers may prefer fringe benefits over cash. A and B provide valid explanations for why workers may prefer fringe benefits, while D specifically notes the tax benefits that certain fringe benefits offer.

Question 16

refer to the diagram below. All points along the ray 0P reflect a constant proportion of wages to fringe benefits.

-Suppose some development rotates the isoprofit line outward,to line 2.If history is a guide,we would expect this worker's new wage-fringe optimum to be at point:

Accepted Answer

When the isoprofit line rotates outward to line 2, it indicates that the firm is able to offer a higher combination of wages and fringe benefits while maintaining the same level of profit. The new wage-fringe optimum occurs where the worker's highest indifference curve (representing their preferences for wages and fringe benefits) is tangent to the new isoprofit line. Point F represents this new tangency point, indicating the worker's new optimal combination of wages and fringe benefits given the outward rotation of the isoprofit line.

Question 17

The slope of a wage-fringe indifference curve reflects:

Accepted Answer

The slope of a wage-fringe indifference curve reflects a worker's willingness to give up an extra dollar of wages in exchange for an extra dollar of fringe benefits. It represents the trade-off between wages and fringe benefits that an individual is willing to make while maintaining the same level of satisfaction or utility. The higher the slope, the more a worker is willing to give up in wages for an extra dollar of fringe benefits.

Question 18

Because there is a _______ marginal rate of substitution of fringe benefits for wages,a worker's wage-fringe indifference curves are typically _______:

Accepted Answer

The marginal rate of substitution of fringe benefits for wages typically diminishes as more fringe benefits are substituted for wages, leading to indifference curves that are convex to the origin. This reflects the decreasing willingness to substitute fringe benefits for wages as the quantity of fringe benefits increases.

Question 19

The employer's share of the Social Security and Medicare components of the payroll tax has increased,from 6.13% in 1980 to its current rate of 7.65%.Because employers pay no payroll tax on many fringe benefits,this change in tax rates has effectively:

Accepted Answer

The answer of The employer's share of the Social Security...

Question 20

An individual wage-fringe isoprofit line shows:

Accepted Answer

An individual wage-fringe isoprofit line represents combinations of wages and fringe benefits that yield the same level of profit for the firm, indicating the trade-offs between wages and fringe benefits while maintaining constant profit.

Quiz 7: Alternative Pay Schemes and Labor Efficiency

refer to the diagram below. All points along the ray 0P reflect a constant proportion of wages to fringe benefits. -Given isoprofit line 1,this worker's wage-fringe optimum is given by point:

If a firm can offer fringe benefits worth more than one dollar for a one dollar reduction in wages:

The firm's wage-fringe isoprofit curve typically has a slope less than 1 (absolute value) because:

The trend of fringe benefits as a percentage of total compensation can be partially explained by the fact that:

Fringe benefits currently account for approximately what percentage of total compensation?

One view of the firm is that stockholders hire managers who,in turn,hire workers.Maximum profits are earned by satisfying the customer.The two principal-agent relationships illustrated in this view are:

The share of fringe benefits in total employee compensation:

The proportion of total compensation paid out as fringe benefits tends to be larger in:

refer to the diagram below. All points along the ray 0P reflect a constant proportion of wages to fringe benefits. -Which one of the following events could not have caused a shift from isoprofit line 1 to line 2?

As a percentage of benefits,the largest share goes to:

Fringe benefits will tend to be a greater proportion of total compensation,the:

The slope of a wage-fringe isoprofit curve reflects:

refer to the diagram below. All points along the ray 0P reflect a constant proportion of wages to fringe benefits. -If the isoprofit line shifts from line 1 to line 2,then:

"Total compensation" includes:

Which one of the following is not a valid explanation for why workers may prefer an extra dollar's worth of fringe benefits to an extra dollar's worth of cash?

refer to the diagram below. All points along the ray 0P reflect a constant proportion of wages to fringe benefits. -Suppose some development rotates the isoprofit line outward,to line 2.If history is a guide,we would expect this worker's new wage-fringe optimum to be at point:

The slope of a wage-fringe indifference curve reflects:

Because there is a _ marginal rate of substitution of fringe benefits for wages,a worker's wage-fringe indifference curves are typically _:

The employer's share of the Social Security and Medicare components of the payroll tax has increased,from 6.13% in 1980 to its current rate of 7.65%.Because employers pay no payroll tax on many fringe benefits,this change in tax rates has effectively:

An individual wage-fringe isoprofit line shows: