2. Consider a representative firm that aims at maximizing its profit by choosing the real wage (w), capital input (K) and labour input (L) optimally. The profit function of the firm is given by: π = F(K, e(w)L)-rk-wL The effort function of the representative firm takes the following form: (ŵ-wa Wd e(w) = where w and wa denote the representative firm's optimal real wage and employees' alternative wage, respectively. (a) Solve the model for the Solow condition and discuss how the optimal wage depends on the model parameters. (b) Discuss by justifying on theoretical grounds the impact of four non-wage factors that affect workers efforts. 0 <0 <1

2. Consider a representative firm that aims at maximizing its profit by choosing the real wage (w), capital input (K) and labour input (L) optimally. The profit function of the firm is given by: π = F(K, e(w)L)-rk-wL The effort function of the representative firm takes the following form: (ŵ-wa Wd e(w) = where w and wa denote the representative firm's optimal real wage and employees' alternative wage, respectively. (a) Solve the model for the Solow condition and discuss how the optimal wage depends on the model parameters. (b) Discuss by justifying on theoretical grounds the impact of four non-wage factors that affect workers efforts. 0 <0 <1

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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