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

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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)

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