If an additional dollar spent on monitoring would reduce shirking by 10 minutes,then the firm will increase the worker's wage by $1 if this caused
A) shirking to increase by less than 10 minutes.
B) shirking to decrease by more than 10 minutes.
C) shirking to decrease by less than 10 minutes.
D) monitoring to become unnecessary.

Question

Quizplus · Accepted Answer

If an additional dollar spent on monitoring would reduce shirking by 10 minutes, then investing an additional dollar in monitoring is equivalent to reducing the wage by $1. Thus, if a $1 wage increase results in the reduction of shirking by more than 10 minutes, it is economically justifiable to invest in monitoring. Therefore, if the wage increase results in shirking decreasing by more than 10 minutes, the firm will increase the worker's wage by $1.

If an Additional Dollar Spent on Monitoring Would Reduce Shirking