Find out lowest efficiency wage and value , Managerial Economics

Assignment Help:

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.

 

 


Related Discussions:- Find out lowest efficiency wage and value

expected profit, The Learned Book Company has a choice of publishing one o...

The Learned Book Company has a choice of publishing one of two books o the subject of Greek mythology.  It expects the sales period for each to be extremely short, and it estimates

Nature and function of money, The nature and function of money The dev...

The nature and function of money The development of money was necessitated by specialization and exchange.  Money was needed to overcome the shortcomings and frustrations of t

What is the profit maximising ticket price, A promoter decides to rent an a...

A promoter decides to rent an arena for concert. Arena seats 20,000. Rental fee is 10,000. (This is a fixed cost.) The arena owner gets concessions and parking and pays all other e

Central bank functions-goverment banker and fiscal agent, Goverment Banker,...

Goverment Banker, Fiscal Agent and Adviser Central banks in all countries acts as the fiscal agent, banker and adviser on all important financial matters to government of thei

Cost parameter, A toy manufacturer makes output according to the production...

A toy manufacturer makes output according to the production function: where n is the number of workers employed by the firm, O is a technological parameter and g the worker

Factors affecting the total market demand, Factors affecting the total mark...

Factors affecting the total market demand These are broadly divided into the determinants of demand and conditions of demand. (a)      Own price of the product This

Volatility of the stock market, You have been provided with daily data star...

You have been provided with daily data starting in January 2009 on the main New Zealand stock market index, the NSX-50. Choose a suitable model for measuring volatility on the New

National income and standards of living, NATIONAL INCOME AND STANDARDS OF L...

NATIONAL INCOME AND STANDARDS OF LIVING Standard of living refers to the quantity of goods and services enjoyed by a person. These goods may be provided publicly, such as in t

Determine the managerial economics techniques, Determine the Managerial eco...

Determine the Managerial economics techniques Though the most frequent applications of these techniques are as below:  Risk analysis: Numerous models are used to quantif

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd