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What if instead that headquarters uses

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A company headquarters seeks to get correct information about the productive capacity of one of its plants. The plant's facility's capacity is Q = 10,000 units, but the headquarters is in the dark, but headquarters wants the plant to be at maximum output.

a. Headquarters decides to use the bonus system: 

B = .5(Q-QT), 

where the plant manager forecasts the likely output QT. If actual output Q exceeds QT at the end of the year, the bonus increases. If Q falls short of QT, the bonus is reduced. Under this system, will the manager report the plant's true capacity, 10,000 units? why or why not?

b. What if instead that headquarters uses the following bonus system:

B = .4QT + .3(Q-QT), if Q . QT, and B = .4QT + .5(Q-QT), if Q , QT.

Will the manager report the plant's true capacity? Will the manager strive for maximum output? Why or why not?

Reference no: EM132387963

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