QUESTION 20

1. A company compensates its sales manager in such a way that the sales manager honestly provides a sales target (forecast). The companys compensation method is:

   C = a F + b (A T), (if A T)

   a F c (T A), (if A < T)

   where, C = compensation; A = actual sales by sales manager; T = sales target provided by sales manager

   The company wants to elicit truthful revelation of the workers private information (regarding future sales units). For that purpose, which of the following sets of values can work?

   	A.	a = 0.6, b = 0.4, c = 0.2
   	B.	a = 0.4, b = 0.2, c = 0.6
   	C.	a = 0.4, b = 0.6, c = 0.2
   	D.	a = 0.2, b = 0.4, c = 0.6

3 points

QUESTION 21

1. Use the information given in the previous question. Assume that the values of a, b, and c have been determined appropriately. Now, Tom, sales manager knows that to his best knowledge, the estimated sales figure for next period is 100 units. Which of the following is not true? (no computations necessary)

   	A.	[set the target at 100 and actually sell 120] is better than [set the target at 100 and actually sell 100].
   	B.	[set the target at 100 and actually sell 120] is better than [set the target at 80 and actually sell 120].
   	C.	[set the target at 100 and actually sell 100] is better than [set the target at 80 and actually sell 100].
   	D.	[set the target at 80 and actually sell 80] is better than [set the target at 100 and actually sell 100].