3 Assume that an employer can use acombination of causal and permanent labor onthe production of rice. Assume that Lc representthe number of monitoring tasks, performed bycausal workers and Lp represent thenonmonitoring tasks performed by permanentworkers. Their production technology is definedby: Q = LcLp 1 Assume that the goal is toproduce 500 pounds, but they want to spendthe least they can doing so.a). Assume that causal and permanentwages/task is wc = 5 and wp = 10, respectively.Which combination of labor is the least costly?b). Assume now causal wages are wc = 5 andpermanent wp = 6. Which combination of laboris the least costly?(c) Assuming that the employer can observe theeffort exerted and fire the employee if it shrinks,what must the gain from shrinking be in case (a)and (b) to ensure the worker will exert effort?Assume the worker will be working for at least10 additional years in the future (N = 10).

Q=LcLpWc=5Wp=10Production is constrained to 500 pounds.

Assume that an employer can use a combination of causal and permanent labor on the production of rice. Assume that Lc represent the number of monitoring tasks, performed by causal workers and Lp represent the

Assume that an employer can use a combination of causal and permanent labor on the production of rice. Assume that Lc represent the number of monitoring tasks, performed by causal workers and Lp represent the

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Assume that an employer can use a
combination of causal and permanent labor on
the production of rice. Assume that Lc represent
the number of monitoring tasks, performed by
causal workers and Lp represent the
nonmonitoring tasks performed by permanent
workers. Their production technology is defined
by: Q = LcLp 1 Assume that the goal is to
produce 500 pounds, but they want to spend
the least they can doing so.
a). Assume that causal and permanent
wages/task is wc = 5 and wp = 10, respectively.
Which combination of labor is the least costly?
b). Assume now causal wages are wc = 5 and
permanent wp = 6. Which combination of labor
is the least costly?
(c) Assuming that the employer can observe the
effort exerted and fire the employee if it shrinks,
what must the gain from shrinking be in case (a)
and (b) to ensure the worker will exert effort?
Assume the worker will be working for at least
10 additional years in the future (N = 10).

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