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

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

Quizplus · Accepted Answer

To determine the optimal level of effort, we need to find the point where the marginal benefit of exerting more effort equals the marginal cost of exerting that effort, which in this case is the wage. Thus, we need to find the level of effort at which the marginal product of labor (MPN) equals the wage rate.

Setting MPN = W, we solve for N:
100 - N = 9W/E
N = 100 - (9W/E)

Substituting the given relationship between effort and wage, we get:
N = 100 - (99/10)E

To find the value of E that maximizes N, we take the derivative of N with respect to E and set it equal to zero:
dN/dE = (-99/10) = 0
E = 10

Plugging E = 10 back into the expression for N, we get:
N = 100 - (99/10)(10) = 1

Therefore, the optimal level of effort is E = 10, which corresponds to a real wage of W = 27 (as given by the relationship between effort and wage). Thus, the answer is C) 27.

A Firm Faces the Following Relationship Between the Real Wage