What are the consequences to a firm if it paid the same cash wages but greater f
ID: 1117998 • Letter: W
Question
What are the consequences to a firm if it paid the same cash wages but greater fringe benefits to its employees than the other firms in the industry do?
A. Employees from the other firms would shift to that firm.
B. The firm would earn less profit, would not be able to raise capital, and would shrink in size or go out of business.
C. The firm would raise its prices for the goods and services it sells.
D. The firm would reduce the number of older, higher-risk employees and hire younger, lower-risk employees.
Explanation / Answer
If a firm paid the same cash wages but greater fringe benefits to its employees than the other firms in the industry do then the firm would raise its prices for the goods and services it sells. This is because fringe benefits are also a type of cost that the firm has to take care of. So, an increased fringe benefits will raise the cost of production for the firm as a result of which it will need to increase the price of its goods and services.