Question

Workers and firms often enter into contracts that fix prices or wages, sometimes for years at a time. If the price level turns out to be higher or lower than was expected when the contract was signed, one party to the contract will lose out. Briefly explain why, despite knowing that, workers and firms still sign long-term contracts.

Answer 1

Answer:

Long term benefits and security

Explanation:

There are five benefits to entering into a long term contract:

1. Established "order of business": Most jobs require a period for employee training and setting up SOP. In firms with long term contract employee turnover is not high and these people become well trained in the field and minimal time is wasted training new people too frequently
2. Higher investment return; most businesses need a start-up fee for buying the tools and offices that are needed. This fee for long time contracts will be a one-time fee for a long lived company.  Money will be made in the long run to cover the initial investment
3. Better support for customer service: the longer a business is kept open the easier it is for the employees to understand that there are specifics about customers that can make their experience worth while
4. Stronger Relationships can be built with other business for collaborative advantages as the long term business will show that they are committed to the firm and the brand that they represent.
5. Better Protection from people around such as the auxiliary staff that have become familiar with the persons in the company. They will be more protective of the physical building as well as the people that they have become very familiar with.