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ASAP PLZ 1)Consider the involuntary unemployment game played between a firm and a worker who has the opportunity to shirk. Suppose that the firm’s profit function is given by V = (LE)0.5 –WL, and a typical worker’s utility function is written as U = W(1 – 0.75 E), where 0 ≤ E ≤ 1 is the effort index, L is the total labor force in the firm, and W is the unit cost of labor. Suppose also that the probability of being caught is equal to 1 – E.   A) Based on the worker’s expected utility function, find the worker’s optimal effort. B) Find the firm’s optimal wage and employment level.

ASAP PLZ 1)Consider the involuntary unemployment game played between a firm and a worker who has the opportunity to shirk. Suppose that the firm’s profit function is given by V = (LE)0.5 –WL, and a typical worker’s utility function is written as U = W(1 – 0.75 E), where 0 ≤ E ≤ 1 is the effort index, L is the total labor force in the firm, and W is the unit cost of labor. Suppose also that the probability of being caught is equal to 1 – E.   A) Based on the worker’s expected utility function, find the worker’s optimal effort. B) Find the firm’s optimal wage and employment level.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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ASAP PLZ

1)Consider the involuntary unemployment game played between a firm and a worker who has the opportunity to shirk. Suppose that the firm’s profit function is given by V = (LE)0.5 –WL, and a typical worker’s utility function is written as U = W(1 – 0.75 E), where 0 ≤ E ≤ 1 is the effort index, L is the total labor force in the firm, and W is the unit cost of labor. Suppose also that the probability of being caught is equal to 1 – E.

 

A) Based on the worker’s expected utility function, find the worker’s optimal effort.

B) Find the firm’s optimal wage and employment level.

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