What is the lowest efficiency wage and weff

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Reference no: EM131377302

The next two questions refer to the following problem. A risk-neutral worker can provide high effort (at personal cost $14) or low effort (at zero cost). A high effort worker contributes $X to the company’s revenues, a low effort worker contributes $25. If the worker chooses low effort, then with probability 0.7 he is detected by his supervisor and fired. If fired, the worker can earn $10 without providing high effort. (SHOW STEPS PLEASE)

1. What is the lowest efficiency wage, weff , that can induce the worker to provide high effort?

A. weff = $40

B. weff = $30

C. weff = $20

D. weff = $15

E. weff = $10

2. What is the lowest value of X for which the firm is willing to pay the above efficiency wage?

A. X = $50

B. X = $45

C. X = $40

D. X = $35

E. X = $30

Reference no: EM131377302

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