The figure depicts the efficiency wage equilibrium of a worker and a firm.According to this figure:Effort per hourI0.7-.0.5-0-0Isocosts6 10 12Hourly wage, $Worker's bestresponse curveAt B, the MRS is higher than the MRT.The firm would maximise its profits by paying an hourly wage that is $6 abovethe worker?s reservation wage.The firm is able to increase its profits from those attained at A by inducing theworker to exert higher effort in return for a higher wage.At C, the marginal rate of substitution (MRS) between higher wage cost andhigher effort exceeds the marginal rate of transformation (MRT).Question 13 (1 point)

Efficiency wage: an above -market paid by employers to motivate workers to exert higher effort,…

Answered: The figure depicts the efficiency wage…

Business

Economics

The figure depicts the efficiency wage equilibrium of a worker and a firm. According to this figure:

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter11: The Firm: Production And Costs

Section: Chapter Questions

Problem 15P

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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)

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