Suppose two owners of a store agree to split the profit equally regardless of the number of hours each spends working at the store.As a result,
A) production efficiency is achieved.
B) each enjoys only half the marginal benefit of an additional hour working in the store.
C) one will work all of the time while the other works zero hours.
D) each will work as many hours as if he or she were the sole owner.

Question

Quizplus · Accepted Answer

When profits are split equally regardless of the hours worked, each owner only receives half the benefit (or marginal benefit) of their additional work, as the other half goes to the co-owner. This can lead to a situation where both are less motivated to work additional hours since the full benefit of their labor is not realized individually.

Suppose Two Owners of a Store Agree to Split the Profit