ECON 426 Lecture Notes - Reservation Wage, Hne, Equation
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17 Oct 2011
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Related Questions
Imagine a firm trying to minimize its unit labor cost and a situation where the employee actually responds to higher wages by putting more effort on the job. Moreover, the reservation wage of the employee (the minimum wage at which they are willing to work) is 15 dollars per hour. In fact, imagine the following relationship between output and the wage rate:
Wage per hour | Output per hour |
15 | 170 |
16 | 190 |
17 | 208 |
18 | 224 |
19 | 238 |
20 | 250 |
21 | 260 |
22 | 268 |
23 | 274 |
24 | 278 |
25 | 280 |
a) Should the firm pay its employee as little as possible in an attempt to make the most money? If not, what do you think would be the best choice for the firm in terms of wage level?
b) Suppose the reservation wage increases to 17 dollars. How would this likely affect the situation and your analysis in a)?