A profit-maximizing firm that uses an efficiency wage and monitors will increase the wage it pays its workers until
A) the worker requires no monitoring.
B) the worker receives the market wage and requires full-time monitoring.
C) the cost of monitoring the worker equals the efficiency wage.
D) the change in the workers' productivity from being monitored times the per time unit cost of monitoring equals one.

Question

Quizplus · Accepted Answer

The firm will increase wages until the marginal benefit of increased productivity from monitoring equals the marginal cost of monitoring, which is when the change in productivity times the cost of monitoring equals one.

A Profit-Maximizing Firm That Uses an Efficiency Wage and Monitors