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    marginal product of labor,

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    A firm identifies the following relationship between the real wage it pays and the effort exerted by its workers:

    Real Wage Effort
    8 7
    9 10
    12 15
    13 17
    16 19
    17 20

    The marginal product of labor for this firm is

    MPN = E(100 - N) / 15

    Where E is the effort level and N is the number of workers employed. If the firm can pay only one of the six wage levels shown, which should it choose? How many workers will it employ?
    There are 200 workers in the town where the firm is located, all willing to work at a real wage of 8. Does this fact change your answer to the first part of this question? If so, how?

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    Solution Preview

    The figure (attached) shows an increasing function, i.e., the higher wage rate, the more effort.
    Assuming the firm's product market is perfectly competitive, and the price of the product is exogenous (a constant decided by the market). By marginal product theory, workers are paid by how much they produce, i.e., W ...

    Solution Summary

    Real Wage Effort is depicted.