What is the problem with paying plant managers in multi-plant firms according to the level of output they produce?
A) Managers in low-cost or high-capacity plants could be penalized, in percentage terms, for their overproduction.
B) The production problem in multi-plant firms is usually how to lower production to increase market power, not how to increase production.
C) Managers in high-cost or low-capacity plants could be penalized for production constraints over which they have no control.
D) Managers would have an incentive to understate the productive capacity of their plants.
E) Managers would have an incentive to overstate the productive capacity of their plants.

Question

Quizplus · Accepted Answer

Managers in high-cost or low-capacity plants could be penalized for production constraints over which they have no control. This is because their output level would be lower than plants with lower costs or higher capacity, leading to lower rewards even if they are performing well given their constraints. The other options are not accurate or do not present significant problems with this payment system.

What Is the Problem with Paying Plant Managers in Multi-Plant