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What will happen to her level of effort

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Emma Peterson is a worker for ABC Inc. She has an effort cost function of C = 2e2 and a monthly reservation wage of $3,500. Her wage function is W = 3,500 + 0.4Q. If the incentive coefficient is equal to 0.4 then Q = 400e. Q is Emma's output. Assume that the incentive coefficient increases from 0.4 to 0.5 and Emma's base salary decreases from $3,500 to $3,000.

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

Reference no: EM132414857

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