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1. In the county of Snowdonia, the winters are cold and the summers are foggy. The king demands that workers

pay 10% of all earnings to the government. If they work for themselves, this calculation is easy. If they work

for someone else, then workers are taxed on the entire amount their employer spends on them whether it is in

the form of salary or fringe benefits. Groucho Motor Works is the country's largest car company. It is

considering paying middle management employees with an 80,000 SD (Snowdonian Dollar) salary and a free

company car. Use concepts from our class to give the car company some advice on the good news and bad

news of this approach.

2.Mark runs a company called "FingerOne" which makes foam fingers that are printed with artwork. These

foam fingers are sold to sports teams. FingerOne employs sales representatives that visit potential clients

and try to convince them to use the company's product. Most of these sales reps have a background in

sports so that they can communicate more effectively with the clients. Unfortunately, most of the sales reps

weren't very successful in their professional sports careers (otherwise they wouldn't need this job) so they

have very little money saved.

Mark is considering two different types of compensation schemes. In the first, he would pay the sales reps a

salary. In the second he would make half of their pay dependent on the dollar value of the contracts they

obtained that year. Give Mark some advice on the good and bad news of the two approaches.