Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1 ) a) Draw two indifference curves for a worker who likes income but dislikes effort. Be sure to label all of the axes and

image text in transcribed
image text in transcribed
1 ) a) Draw two indifference curves for a worker who likes income but dislikes effort. Be sure to label all of the axes and to show which of the two indifference curves has a higher utility level. Describe what the shape of the indifference curve means. b) What would the indifference curve look like if "work is good" (that is, increased effort always yields greater intrinsic rewards, even at high levels of effort)? For this case, how hard does economic theory predict that this worker will work? (Hint: your answer might be unrealistic). c) Lastly, draw an indifference curve that shows intrinsic rewards at low levels of effort, but work as lousy at higher effort levels. Show the effort range in which it should be easy to motivate this worker without any financial incentives. (21 points) 2) The simplest model of incentive compensation in personnel economics indicates that the optimal compensation arrangement is for workers to buy their jobs for a fixed amount and to be paid piece rates for the entire marginal net revenue. Draw a graph that shows this optimal arrangement. Be sure to clearly label all of the elements of the graph, including the axes. Next, describe why this is the optimal compensation arrangement based on the assumptions of personnel economics. In doing so, be sure to explain (a) why this overcomes the shirking problem, and (b) why the firm needs to "sell" the job to the worker. Lastly, give a real-world example in which a worker essentially buys his or her job. (18 points) 3) Consider two types of labor (high-skilled and low-skilled) that are independent in the production process. In conjunction with a graph, explain how the organization should determine what mix of employees to hire. Be sure to clearly indicate the optimal staffing choice. Lastly, a naive approach to hiring might only look at absolute labor costs (e.g., high-skilled workers are more expensive than low-skilled because their salaries are higher). Explain why this naive approach is misguided. (14 points)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting Principles A Business Perspective Financial Accounting Chapter 1-8

Authors: James Edwards, Roger Hermanson, Bill Buxton

1st Edition

1461088186, 978-1461088189

More Books

Students also viewed these Economics questions

Question

=+a) Why is there no coefficient for Medium?

Answered: 1 week ago

Question

13. Give four examples of psychological Maginot lines.

Answered: 1 week ago