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Hart ger have. Hart per hour. H Lower cost of effort 0.9 Medium cost of effort B 0.7 A 0.6 Slope = MRS Effort per

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Hart ger have. Hart per hour. H Lower cost of effort 0.9 Medium cost of effort B 0.7 A 0.6 Slope = MRS Effort per hour, e 0.45 Higher cost of effort 0 O 10 13 20 Hourly wage, w ($) The slope is the MRS The employer is indifferent between points on an isocost line. Like other indifference curves, the slope of the effort isocost line is the marginal rate of substitution: the rate at which the employer is willing to increase wages to get higher effort.3. Ebrt and Wages Suppose that, with the status quo best response curve in Figure 6.7 (Lecture Slide 27), the rm chooses the wage to minimize the cost of effort, and the worker's best response is an effort level of 0.6. If unemployment rose: 1. Would effort be higher or lower than 0.6 if the rm did not change the wage? 2. How would the rm change the wage if it wanted to keep the effort level at 0.6? 3. How would the wage change if the rm minimized the cost of effort at the new unemployment level

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