Reference no: EM13352911

Q. Let's say that you own a restaurant with 3 employees and you are trying to decide between two different production processes and two different pay schemes.

(a) Your rest idea is to have all 3 employees cook, clean, and wait tables. This implies that your production function is Q = q1 + q2 + q3, which means that your employees are substitutes.

i. Assume that you can monitor your employees output perfectly if you choose to, so that you can know each individual qi. If your employees are self-interested, how much output would you expect each individual worker to produce without monitoring?

ii. If you wanted to increase Q, what kind of pay scheme might you try? Explain.

iii. From the point of view of the workers, what kind of game is this?

(b) Your other idea is to have your workers specialize, so that one person cooks, the other cleans, and the third waits tables. This implies that your production function is Q = min (q1; q2; q3), or that your workers are complements.

i. When workers are complements, it is harder to monitor the individual output of each worker, so now you can perfectly measure Q, but can only imperfectly measure individual qi. If your employees are self-interested, how much output would you expect each individual worker to produce absent monitoring?

ii. If you wanted to increase Q, what kind of pay scheme might you try? Explain.

iii. From the point of view of the workers, what kind of game is this?