What will happen to her level of effort

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Jennifer Shapiro is a worker for XYZ Company. She has an effort cost function of C = 2e2 and a monthly reservation wage of $2,500. Her wage function is W = 2,500 + 0.4Q. If the incentive coefficient is equal to 0.4 then Q = 300e. Q is Jennifer's output. Assume that the incentive coefficient decreases from 0.4 to 0.3 and Jennifer's base salary increases from $2,500 to $2,700.

  • What will happen to her level of effort?
  • How will this change XYZ Company's profits?

Reference no: EM131541347

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