10. Return to the question of optimal team size without moral hazard, which we considered in Results...
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10. Return to the question of optimal team size without moral hazard, which we considered in Results 26.10 through 26.12. Instead of assuming—as we did there—that the firm can form as many teams as it wants from its workforce, each with a production function of Q(N), assume instead that the firm is contemplating a single new project which has that production function. To allocate workers to that project, it has to remove them from another activity where each worker produces units of output. Does the profit-maximizing team size still maximize AP? Why or why not?
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