Question

Describe how a manager who derives satisfaction from both income and shirking allocates a 10-hour day between these activities when paid an annual, fixed salary of $110,000.

Answer 1

Incomplete question. The remaining part reads;

"When this same manager is given an annual, fixed salary of $110,000 and 3 percent of the firm's profits—amounting to a total salary of $155,000 per year—the manager chooses to work 8 hours and shirks for 2 hours. Given this information, which of the compensation schemes does the manager prefer?"

Answer:

The scheme with a fixed payment of $110,000 and a percentage of profits.

Explanation:

It can be observed that the scheme with a fixed payment of $110,000 and a percentage of profits lead to a reduction of working hours by the manager.

However, to show that he [the manager] prefers the later compensation, we are told that he "shirks for 2 hours."