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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

Explain four ways in which a firm might increase its profits by raising the wages it pays.

To determine

Profitability of offering high wage.

Explanation

There is some profitability for the firm in paying higher than equilibrium wage rate. They are as follows: workers health, worker turnover, worker quality, and worker efforts.

Workers’ health: The wage and health are closely-related. The workers who earn higher wages will have more nutritious diet, which makes them healthier and more productive. A firm considers this scenario to be more profitable, hence they pay higher wages to the workers. This is because healthy workers will lead to higher productivity. Hence, it is good for the firm.

Worker turnover: The reason of reducing turnover is that it is costly for firms to hire and train new workers. However even after they are trained, the newly hired workers are not as productive as experienced ones...

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