2. Consider a representative firm that aims at maximizing its profit by choosing the real wage (w), capital input (K) and labour input (L) optimally. The profit function of the firm is given by: π = F(K, e(w)L)-rk-wL The effort function of the representative firm takes the following form: (ŵ-wa Wd e(w) = where w and wa denote the representative firm's optimal real wage and employees' alternative wage, respectively. (a) Solve the model for the Solow condition and discuss how the optimal wage depends on the model parameters. (b) Discuss by justifying on theoretical grounds the impact of four non-wage factors that affect workers efforts. 0 <0 <1

2. Consider a representative firm that aims at maximizing its profit by choosing the real wage (w), capital input (K) and labour input (L) optimally. The profit function of the firm is given by: π = F(K, e(w)L)-rk-wL The effort function of the representative firm takes the following form: (ŵ-wa Wd e(w) = where w and wa denote the representative firm's optimal real wage and employees' alternative wage, respectively. (a) Solve the model for the Solow condition and discuss how the optimal wage depends on the model parameters. (b) Discuss by justifying on theoretical grounds the impact of four non-wage factors that affect workers efforts. 0 <0 <1

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter10: Cost Functions

Section: Chapter Questions

Problem 10.3P

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