A standard efficiency wage model pays workers higher wages in order to increase worker efficiency. As a result, firm profits increase and there is a pool of involuntarily unemployed workers. In this model, if the firm's cost of monitoring effort falls,
A) the efficiency wage will fall.
B) the number of shirking workers will fall.
C) firm profits will fall.
D) the firm will monitor less.
E) the pool of involuntarily unemployed workers will increase.

Question

Quizplus · Accepted Answer

If the firm's cost of monitoring effort falls, it becomes cheaper for the firm to monitor workers, reducing the need to pay a high efficiency wage to deter shirking. Thus, the efficiency wage will fall.

A Standard Efficiency Wage Model Pays Workers Higher Wages in Order