Salesperson Effort and Commission Structure
Alex, a salesperson, earns a fixed salary plus a 10% commission on the revenue from sales they generate. Alex is considering whether to exert a 'high' level of effort or a 'moderate' level. Exerting a high level of effort has a personal cost (in terms of time and energy) that Alex values at $6,000. This high effort would generate $50,000 in additional revenue for the company compared to a moderate effort level. From a collective viewpoint (company + Alex), exerting high effort is beneficial because the total gain ($50,000) is greater than the cost ($6,000). Analyze this situation and explain why Alex, acting in their own self-interest, will likely choose not to exert the high level of effort.
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The Economy 2.0 Microeconomics @ CORE Econ
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Introduction to Microeconomics Course
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