The bonus of a plant manager in a vertically integrated firm is ...

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The bonus of a plant manager in a vertically integrated firm is based on the following formula:
 
  Bonus = 10,000 - 0.5(Qf - Q)
 
  where Qf is feasible production and Q is actual production. The value for Qf is provided by the plant manager at the beginning of the year. With this scheme, the plant manager has an incentive:
  A) to underestimate Qf.
  B) to overestimate Qf.
  C) to reveal the true Qf and make Q as small as possible.
  D) to reveal the true Qf and make Q as large as possible.

Question 2

Refer to Scenario 8.2. The result of the tax in the long run will be that
 
  A) Q falls from 30,000; P rises by less than 20,000.
  B) Q falls from 30,000; P rises by 20,000.
  C) Q falls from 30,000; P does not change.
  D) Q stays at 30,000; P rises by 20,000.
  E) Q stays at 30,000; P rises by less than 20,000.

[orangecrush]

Answer to Question 1

A

Answer to Question 2

A