Managerial Economics & Business Strategy 8th Edition by Michael Baye,Jeff Prince

Exercise 23

An internal study at Mimeo Corporation-a manufacturer of low-end photocopiers-revealed that each of its workers assembles three photocopiers per hour and is paid $3 for each assembled copier. Although the company does not have the resources needed to supervise the workers, a full-time inspector verifies the quality of each unit produced before a worker is paid for his or her output. You have been asked by your superior to evaluate a new proposal designed to cut costs. Under the plan, workers would be paid a fixed wage of $8 per hour. Would you favor the plan? Explain.