A firm wishes to fire an employee.The company will save up to $3000 per month on his compensation package.It is estimated that the employee contributes around $4,100 to the company.The firm

Question

Quizplus · Accepted Answer

The firm will save $3000 by firing the employee but will lose out on the $4100 contribution the employee brings. Therefore, the hidden cost of firing the employee is $1100. If the hidden cost of not firing the employee is greater than $1100, then the firm should fire the employee. Thus, the firm should fire the employee only if the hidden cost is $1500, which is greater than $1100. Therefore, option C is the best answer.

A Firm Wishes to Fire an Employee