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Efficiency wages is a concept introduced by Janet Yellen. The concept is that the marginal product of labor is affected by the wage rate. Under

Efficiency wages is a concept introduced by Janet Yellen. The concept is that the marginal product of labor is affected by the wage rate. Under this framework, the marginal product is a function of the real wage and labor hours so that mpn(n,w). Specifically, let it be this function, mpn(n,w) = n1 (w w), 0 <<1, 0< <1, w >0 where w is the reservation real wage below which the worker chooses unemployment. The optimal decision making condition of firms continues to be that which we had in class, mpn(n,w) = qFILLw qFILL where > 0, 0 < qFILL < 1 and is taken as given by the firm, and w > 0 is taken as given by the firm. The firmchooses howmanyvacancies to post and knows that vacancies vac transform into hours worked in the following way, n = qFILLvac. Assume that workers and firms separate from their jobs each period so that s = 1. Answer the following questions: 1. (3 points) TRUE, FALSE, or UNCERTAIN? The marginal product increases ceteris paribus as the level of hours worked increases. 2. (3 points) TRUE, FALSE, or UNCERTAIN? The marginal product increases ceteris paribus as the real wage

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