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A manager notices the company's sales personnel are offering its customers deals that, while increasing revenues, are lowering profits. After reviewing the company's compensation plan,
A manager notices the company's sales personnel are offering its customers deals that, while increasing revenues, are lowering profits. After reviewing the company's compensation plan, the manager finds bonuses are based on sales revenue. Explain the sales personnel's behavior using the economic principle that "people respond to incentives" and recommend a change to the compensation plan to correct this problem.
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