Find out lowest efficiency wage and value , Managerial Economics

A risk-neutral agent's working life has two periods. In each period, the agent can provide high effort (at personal cost $2,000) or low effort (at zero personal cost). In a given period, a high effort worker contributes $X to the company's revenues, a low effort worker contributes $10,000.

If the worker chooses low effort in the first period, then with probability 0.1 she is detected by her supervisor and fired at the end of the period without any compensation. In such a case, the firm hires a new (identical) worker for the second period. If fired, the worker goes to her alternative employment, where she can earn $5,000 in the second period without providing high effort. In the second period, the firm pays $5,000 (to either the retained worker or the replacement worker), regardless of the worker's level of effort. At the end of the second period, the firm dissolves.

(a) What is the lowest efficiency wage that would induce the worker to provide high effort in the first period?

(b) What is the lowest value of X for which the firm is willing to pay the above efficiency wage?

(c) What is the worker's net utility under the efficiency wage scheme? Is the worker better off than if she were simply paid $5,000 in each period and provided low effort? Explain briefly.

 

 

Posted Date: 2/28/2013 2:23:08 AM | Location : United States







Related Discussions:- Find out lowest efficiency wage and value , Assignment Help, Ask Question on Find out lowest efficiency wage and value , Get Answer, Expert's Help, Find out lowest efficiency wage and value Discussions

Write discussion on Find out lowest efficiency wage and value
Your posts are moderated
Related Questions
Meaning of Inflation There has been a proliferation of definitions of inflation. Many of these definitions, however, embody the description of the processes by which the underl

bargaining power of customer for a cement company

The significance of behavioural approach is difficult to assess. It provides useful insights into some aspects of business behaviour. March and Cyert have claimed considerable shor

THE GOVERNED ECONOMY The governed economy contains central authorities often simply called "the government" - who levy taxes on firms and households and which engages in numer

What is producer surplus? “The more the competition among the sellers, the less the producer surplus enjoyed by the producers” – do you agree with the statement. Justify your answe

Gross Domestic Product A measure of national economic activity, GDP is measured from two approaches. GDP can be viewed as the total value of all goods and services produced in

prepare a break-even analysis to determine volume required to cover costs with and without a specified profit target and price.

SIGNIFICANCE  OF  THE  CONCEPT  AND THEORY OF SEARCH UNEMPLOYMENT   From what has been  said earlier, you understand the significance of the theory of search  unemployment  as


Q. Illustrate Internal Economies of Scale? Internal economies of scale are the benefits of large scale production. They are enjoyed by the firm when it increases its scale of p