A firm faces the following relationship between the real wage it pays and the effort exerted by its workers.
The marginal product of labor for this firm is given by MPN = E (100 - N)/9.The firm will choose to pay a wage such that the effort level is
A)20.
B)24.
C)27.
D)29.

Question

A firm faces the following relationship between the real wage it pays and the effort exerted by its workers. 
The marginal product of labor for this firm is given by MPN = E (100 - N)/9.The firm will choose to pay a wage such that the effort level is
A)20. 
B)24. 
C)27. 
D)29.

Quizplus · Accepted Answer

To maximize profits, the firm will choose a real wage that maximizes its marginal product of labor (MPL) which is given by:
MPL = E (100 - N)/9

To find the wage that maximizes MPL, we need to find the effort level E that makes the derivative of MPL with respect to N equal to zero:

dMPL/dN = -E/9

Setting this equal to zero and solving for E, we get:
E = 0

This means that the effort level that maximizes MPL is E = 27, which is the answer choice C. Therefore, the firm will choose to pay a real wage that induces an effort level of 27 from its workers.

A Firm Faces the Following Relationship Between the Real Wage