The effort of a firm's workers depends on their real wage according to the following schedule. The marginal product of labor is MPN = E(400 - 4N)/30.
(a)What is the efficiency wage?
(b)How many workers will the firm hire?
(c)Suppose an adverse productivity shock reduces the marginal product of labor to MPN = E(360 - 4N)/30.How would your answers to parts (a)and (b)change?

Question

The effort of a firm's workers depends on their real wage according to the following schedule.  The marginal product of labor is MPN = E(400 - 4N)/30.
(a)What is the efficiency wage?
(b)How many workers will the firm hire?
(c)Suppose an adverse productivity shock reduces the marginal product of labor to MPN = E(360 - 4N)/30.How would your answers to parts (a)and (b)change?

Quizplus · Accepted Answer

The Answer is The following table shows the real wage (w),the effort level (E),and the effort per unit of real wages (E / w). <img src="https://d2lvgg3v3hfg70.cloudfront.net/TB2852/11ea6e90_05c3_1b69_8f54_2b363799dd1e_TB2852_00.jpg" alt="The following table shows the real wage (w),the effort level (E),and the effort per unit of real wages (E / w).   (a)The firm will pay a wage of 20,since that wage provides the maximum effort per unit of the real wage (E / w = 1.25). (b)The firm will employ 94 workers,since that is the number of workers for which w = MPN; 20 = 25(400 - 4N)/30,so 4N = 376,so N = 94. (c)No effect on efficiency wage; employment falls to N = 84." class="answers-bank-image d-block" rel="preload" > (a)The firm will pay a wage of 20,since that wage provides the maximum effort per unit of the real wage (E / w = 1.25). (b)The firm will employ 94 workers,since that is the number of workers for which w = MPN; 20 = 25(400 - 4N)/30,so 4N = 376,so N = 94. (c)No effect on efficiency wage; employment falls to N = 84.

The Effort of a Firm's Workers Depends on Their Real