Q.5: Assume that an employer believes that the \"efficiency\" (e) it can get fro

Question

Q.5: Assume that an employer believes that the "efficiency" (e) it can get from a particular worker, as a function of the hourly wage (w), is given by function e =-0125w + 0.1 5w2- 0.005w3, at least up to a wage of 30. [12] a) Create a table of w, e, ehw, and wle for wages equal to 5, 10, 14, 15, 16, 20, and 25. b) Which wage gives the highest ratio of efficiency per unit of labour cost? c) Once the firm has hit on an optimal w, whatever it is, would cutting wages whenever demand falls off increase or decrease wages per unit of efficiency?

Explanation / Answer

a) w e e/w w/e 5 2.5 0.5 2 10 8.75 0.875 1.142857 14 13.93 0.995 1.005025 15 15 1 1 16 15.92 0.995 1.005025 20 17.5 0.875 1.142857 25 12.5 0.5 2 b) The wage of w= 1 gives the highest efficiency per unit of labor. c) The cutting wages will increase wages per unit of efficiency.

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