Question

A commission-paid shoe salesman must decide whether to work hard or shirk. Working hard would increase the probability of a sale from 20% to 40% but would cost him $20. If the salesman is paid a $40 commission per sale and a $20 fixed salary and is under monitoring where he would get fired if he doesn’t work hard, what would he choose to do?

a. ​Work hard
b. ​Shirk
c. ​Walk away from the job
d. ​None of the above

Answer 1

The shoe salesman would choose to work hard in this scenario because it increases the probability of a sale and therefore his earnings.

Step-by-step explanation:

The shoe salesman would choose to work hard in this scenario. Working hard increases the probability of a sale from 20% to 40%, which means he has a higher chance of earning a commission. Although working hard would cost him $20, the $40 commission per sale and $20 fixed salary would offset the cost and provide a higher overall earnings. Additionally, being under monitoring where he may get fired if he shirks reinforces the incentive to work hard.