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Most workplaces are subject to federal minimum wage guidelines, but restaurants are not. Currently, restaurant owners are required to pay waiters and waitresses only $2.13 per hour, provided that those servers are eligible to receive tips. a. How might this pay scheme (low minimum plus tips) resolve a principal-agent problem for restaurant owners? Tipping psychologically benefits restaurant owners, who otherwise would feel guilty about the low wages they pay servers. incentivizes servers to provide poor quality service since customers are required to tip. eliminates the need for restaurant owners to pay servers a livable wage. O incentivizes servers to provide good service, strengthening the restaurant's reputation. b. Why might this pay scheme backfire by creating a different principal-agent problem for restaurant owners? A possible problem is that tipping narrows the pool of job candidates seeking restaurant work. servers may be tempted to fraternize with wealthy patrons, who are likely to tip more, undermining efficiency. servers may be tempted to recommend expensive meals to customers, since tips are usually computed as a percenta of the check. servers may be tempted to provide free dishes or drinks to customers at the expense of the restaurant owner.

Most workplaces are subject to federal minimum wage guidelines, but restaurants are not. Currently, restaurant owners are required to pay waiters and waitresses only $2.13 per hour, provided that those servers are eligible to receive tips. a. How might this pay scheme (low minimum plus tips) resolve a principal-agent problem for restaurant owners? Tipping psychologically benefits restaurant owners, who otherwise would feel guilty about the low wages they pay servers. incentivizes servers to provide poor quality service since customers are required to tip. eliminates the need for restaurant owners to pay servers a livable wage. O incentivizes servers to provide good service, strengthening the restaurant's reputation. b. Why might this pay scheme backfire by creating a different principal-agent problem for restaurant owners? A possible problem is that tipping narrows the pool of job candidates seeking restaurant work. servers may be tempted to fraternize with wealthy patrons, who are likely to tip more, undermining efficiency. servers may be tempted to recommend expensive meals to customers, since tips are usually computed as a percenta of the check. servers may be tempted to provide free dishes or drinks to customers at the expense of the restaurant owner.

Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter1: Introduction: What This Book Is About
Section: Chapter Questions
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23 > Most workplaces are subject to federal minimum wage guidelines, but restaurants are not. Currently, restaurant owners are required to pay waiters and waitresses only $2.13 per hour, provided that those servers are eligible to receive tips. a. How might this pay scheme (low minimum plus tips) resolve a principal-agent problem for restaurant owners? Tipping O psychologically benefits restaurant owners, who otherwise would feel guilty about the low wages they pay servers. incentivizes servers to provide poor quality service since customers are required to tip. eliminates the need for restaurant owners to pay servers a livable wage. O incentivizes servers to provide good service, strengthening the restaurant's reputation. ΟΟΟΟ b. Why might this pay scheme backfire by creating a different principal-agent problem for restaurant owners? A possible problem is that tipping narrows the pool of job candidates seeking restaurant work. servers may be tempted to fraternize with wealthy patrons, who are likely to tip more, undermining efficiency. servers may be tempted to recommend expensive meals to customers, since tips are usually computed as a percentage of the check. servers may be tempted to provide free dishes or drinks to customers at the expense of the restaurant owner.
Transcribed Image Text:23 > Most workplaces are subject to federal minimum wage guidelines, but restaurants are not. Currently, restaurant owners are required to pay waiters and waitresses only $2.13 per hour, provided that those servers are eligible to receive tips. a. How might this pay scheme (low minimum plus tips) resolve a principal-agent problem for restaurant owners? Tipping O psychologically benefits restaurant owners, who otherwise would feel guilty about the low wages they pay servers. incentivizes servers to provide poor quality service since customers are required to tip. eliminates the need for restaurant owners to pay servers a livable wage. O incentivizes servers to provide good service, strengthening the restaurant's reputation. ΟΟΟΟ b. Why might this pay scheme backfire by creating a different principal-agent problem for restaurant owners? A possible problem is that tipping narrows the pool of job candidates seeking restaurant work. servers may be tempted to fraternize with wealthy patrons, who are likely to tip more, undermining efficiency. servers may be tempted to recommend expensive meals to customers, since tips are usually computed as a percentage of the check. servers may be tempted to provide free dishes or drinks to customers at the expense of the restaurant owner.
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