Initially a firm pays a wage and gets an output per worker which are given index numbers of 1.00.Five possible 5 percent increases in the wage and the accompanying output per worker are as follows: 1.05 and 1.09,1.10 and 1.17,1.15 and 1.24,1.21 and 1.28,1.27 and 1.31.What is the efficiency wage?
A)1.05
B)1.10
C)1.15
D)1.21
E)1.27

Question

Quizplus · Accepted Answer

The concept of efficiency wage suggests that paying higher wages than the market equilibrium can improve worker productivity and efficiency. In this case, the firm is testing five different wage increases to see which one results in the highest output per worker. The highest output per worker is associated with a wage increase from 1.00 to 1.15, which results in an output index of 1.24. This suggests that the efficiency wage for this firm is 1.15. Therefore, the answer is choice C.

Initially a Firm Pays a Wage and Gets an Output