Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
![The figure depicts the efficiency wage equilibrium of a worker and a firm.
According to this figure:
Effort per hour
I
0.7-.
0.5-
0-
0
Isocosts
6 10 12
Hourly wage, $
Worker's best
response curve
At B, the MRS is higher than the MRT.
The firm would maximise its profits by paying an hourly wage that is $6 above
the worker?s reservation wage.
The firm is able to increase its profits from those attained at A by inducing the
worker to exert higher effort in return for a higher wage.
At C, the marginal rate of substitution (MRS) between higher wage cost and
higher effort exceeds the marginal rate of transformation (MRT).
Question 13 (1 point)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fdd7e5434-f9f5-4a4d-98e9-78abc74a3868%2Fa3d02d4e-9c4c-47d2-a46f-947ce7e79821%2Forw4iaf_processed.jpeg&w=3840&q=75)
Transcribed Image Text:The figure depicts the efficiency wage equilibrium of a worker and a firm.
According to this figure:
Effort per hour
I
0.7-.
0.5-
0-
0
Isocosts
6 10 12
Hourly wage, $
Worker's best
response curve
At B, the MRS is higher than the MRT.
The firm would maximise its profits by paying an hourly wage that is $6 above
the worker?s reservation wage.
The firm is able to increase its profits from those attained at A by inducing the
worker to exert higher effort in return for a higher wage.
At C, the marginal rate of substitution (MRS) between higher wage cost and
higher effort exceeds the marginal rate of transformation (MRT).
Question 13 (1 point)
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