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
Currency Swaps If the currency of one country is not convertible, the central banks o f the two countries can exchange their currencies, and the country with the non-convertib


Q. Concept of economies of scale? Economies of scale refers to the cost advantages that a business attains because of expansion. 'Economies of scale' is a long run concept and

The market demand for brand X has been estimated as Qx=1500-3Px-0.05I-2.5Py+7.5Pz

Theories associated with different market structures A firms profit maximising output decisions take into account the market structure under that they operate. There are 4 type

Q. Characteristics of perfect competition market? Following are the characteristics of perfect competition market:  • Large Number of Sellers andBuyers: As there are a lar

Describe about the Theory of profit Every industrial and business enterprise aims at maximising profit. Profit is the difference between total economic cost and totalrevenue. P

Shifts in the supply curve Shifts in the supply curve are brought about by changes in factors other than the price of the commodity. A shift in supply is indicated by an entir

A firm faces a perfectly elastic demand for its output at a price of $6 per unit of output. The firm, Though, faces an upward-sloped labor supply curve of          E= 20w-120 W

The Firm The unit that uses factors of production to produce commodities then it sells either to other firms, to household, or to central authorities. The firm is thus the uni