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    Relation Between Productivity and Wage

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    A advertising employee for Tires R US has the following.

    Weekly wage package is W = 1,000 + .5Q, where Q is her dollar volume of sales.

    Productivity is Q = 200e + u, where e denotes her hours of effort and u is a random variable with mean 0.

    If he works an additional hour, the expected value of his wages rises by:

    a. $10
    b. $50
    c. $100
    d. $110

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    Solution Preview

    The weekly wage package is

    W = 1000 + 0.5Q

    where Q is the dollar volume of sales.

    The productivity is

    Q = 200e + u

    where e is the effort level, and u is white ...

    Solution Summary

    Higher productivity implies higher wage, but also requires higher efforts. This example looks at the wage one obtains if one works an additional hour given some productivity function and some wage function.