Continue to suppose as in the previous question that the utility function for each of the firm's 5 workers is $U ( l ) = w l - l ^ { 2 }$ where l is hours worked and w is the wage.Suppose now that the firm can only monitor the total hours worked by the group and pay each worker an equal share of the wage $w = 20$ times the total number of hours.How many hours will each worker choose to work?
A)2 hours.
B)4 hours.
C)8 hours.
D)10 hours.

Question

Quizplus · Accepted Answer

The correct answer is A because each worker will choose to work 2 hours. This is because the marginal utility of working is $w - 2l$, which is positive for $l < w/2$ and negative for $l > w/2$. Therefore, each worker will choose to work until the marginal utility of working is zero, which occurs at $l = w/2 = 2$.

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