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Unformatted text preview: The Pennsylvania State University Spring Semester, 2007 Department of Economics Clifford Economics 304 Homework #10 Answer Sheet 1. A firm believes that the relationship between the real wage it pays and the effort exerted by its workers is given by the following table. Real Wage (w) Effort Level (E) E/W 15 12 .8 18 15 .83 21 21 1 24 30 1.25 27 33 1.22 30 35 1.17 The marginal product of labor for this firm is MPN = E(200 N)/30, where E is the effort level and N is the marginal product of labor. If the firm can pay only one of the six real wage levels shown in the table, what real wage will it pay? How many workers will it employ? The firm will pay a real wage of 24. That is the real wage that maximizes E/W. When W = 24 the effort level is 30, so the marginal product of labor is given by MPN = 30(200 N)/30 = 200 N. Setting the real (efficiency) wage equal to the marginal product of labor gives 24 = 200 N, which can be solved for N = 176, the level of employment....
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This note was uploaded on 10/29/2008 for the course ECON 304 taught by Professor Stone,mistyriano,alejandro during the Spring '07 term at Pennsylvania State University, University Park.
- Spring '07