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Last year the owner of an auto dealership changed her sales managers compensation plan. Previously, the manager received a fixed compensation. After the change, the

Last year the owner of an auto dealership changed her sales manager’s compensation plan. Previously, the manager received a fixed compensation. After the change, the manger’s compensation was based on a percentage of sales. Compared to last year, sales have increased substantially but profits declined. Using economic analysis, explain the outcome and then recommend additional changes that would correct the situation.


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