Assume that the productivity of farm labour depends on daily caloric intake, similarly to that depicted in Figure17.4. Using this kind of diagram, compare the efficiency wages that would apply to the following two types of workers:• A landless labourer• A labourer with small plot of land on which hegrows staple cropsDescribe the likely equilibrium unemployment rates and wage rates for landless labourers and small landholders. Judging partially on the basis of this example, what sorts of data and what empirical strategies might you use to see whether nutritional efficiency wages were an important element in the rural labour markets of poor, rural economies? FIGURE 17.4 Determination of the Efficiency WageOutputThe efficiency wage, W", isthe wage that maximizesprofits when worker produc-tivity depends on how muchhe or she is paid. The effi-ciency relationship linkingproductivity (output) andwages is given by g(WL).Maximizing profits can beshown to imply minimizingthe cost per unit of output,W/Q, or equivalently, maxi-mizing Q/W. Any ray throughthe origin has a slope (riseover run) equal to Q/W.Maximizing profits thenrequires choosing the wageon g(WL) that lies on thesteepest ray Q/W. Thechoice of a wage like W₁yields output Q, and a slopeof Q₁/W₁. The firm would dobetter by increasing thewage to W₂, but profits aremaximized by raising thewage to W", at the tangencybetween Q/W and g(WL).This tangency implies thatthe slopes of the two func-tions are equal; that isAQ QAW WQ*Q₂Q₁AQ_QᎪᎳ ᎳW₁ W₂W*WageQ*W*Q = g(W; L)Q₁W₁

The productivity of the worker depends upon the wage rate paid to them this will define the…

Assume that the productivity of farm labour depends on daily caloric intake, similarly to that depicted in Figure17.4. Using this kind of diagram, compare the efficiency wages that would apply to the following two types of workers: • A landless labourer • A labourer with small plot of land on which he grows staple crops Describe the likely equilibrium unemployment rates and wage rates for landless labourers and small landholders. Judging partially on the basis of this example, what sorts of data and what empirical strategies might you use to see whether nutritional efficiency wages were an important element in the rural labour markets of poor, rural economies?

Assume that the productivity of farm labour depends on daily caloric intake, similarly to that depicted in Figure17.4. Using this kind of diagram, compare the efficiency wages that would apply to the following two types of workers: • A landless labourer • A labourer with small plot of land on which he grows staple crops Describe the likely equilibrium unemployment rates and wage rates for landless labourers and small landholders. Judging partially on the basis of this example, what sorts of data and what empirical strategies might you use to see whether nutritional efficiency wages were an important element in the rural labour markets of poor, rural economies?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter11: Profit Maximization

Section: Chapter Questions

Problem 11.8P

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