A firm sells its output Q for a price of p=1. It pays a fixed wage w to its single worker. Its worker produces Q(e)=24e units of output, where e is the worker's effort. The cost of effort is C(e)= 4e2. The firm pays a fixed wage only if the worker meets their target Q. If not, the worker is fired and takes an outside option of O. Treat all variables as continuous. Assume the firms pay the lowest fixed wage it can. What wage does it pay, so that the worker does not quit?

A firm sells its output Q for a price of p=1. It pays a fixed wage w to its single worker. Its worker produces Q(e)=24e units of output, where e is the worker's effort. The cost of effort is C(e)= 4e2. The firm pays a fixed wage only if the worker meets their target Q. If not, the worker is fired and takes an outside option of O. Treat all variables as continuous. Assume the firms pay the lowest fixed wage it can. What wage does it pay, so that the worker does not quit?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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