(6 Points) Parts (a) and (b) below each list two different types of com- pensation schemes. For each pair of compensation schemes, identify a problem that both schemes face, and explain that problem briefly. (a) Piece rates; commissions
(b) Bonuses applied to team performance; equity compensation schemes

Which statement best explains the relationship between points a and b? a. consumption reaches its highest point, and then supply begins to fall. b. inflation reaches its highest point, and then the economy begins to expand. c. production reaches its highest point, and then the economy begins to contract. d. unemployment reaches its highest point, and then inflation begins to decrease.

With signals from no-claim bonuses and deductibles, a. the marginal cost curve for careful drivers lies to the left of the marginal cost curve for aggressive drivers b. auto insurance companies insure more aggressive drivers than careful drivers because aggressive drivers have a greater need for the insurance c. the market for car insurance has a separating equilibrium, and the market is efficient d. most drivers pay higher premiums than if the market had no signals

Why is it easier for new entrants to get involved in radical innovations when compared to incumbent firms? a. unlike incumbent firms, new entrants do not have to face the high entry barriers, initially. b. new entrants are embedded in an innovation ecosystem, while incumbent firms are not. c. unlike incumbent firms, new entrants do not have formal organizational structures and processes. d. incumbent firms do not have the advantages of network effects that new entrants have.