Pre-Q6.5: Suppose you are in a job and are able to 'shirk' (i.e., put in no effort to your job - and consequently make no contribution to the firm's output) without being observed

Having studied the material covered in Unit 6 from both the EC107 Lecture Videos (and

accompanying Slides) and from the CORE textbook, you should be comfortable in

addressing the questions below prior to the first meeting of your Support and Feedback

Class:

Why is there a potential conflict of interest between owners and managers in

firms? What might be done to avoid any such conflict?

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by your manager. Your alternative to working in this firm is given by either: (i) being unemployed and receiving the equivalent of 4 an hour or (ii) working in a different firm and earning 7 an hour carrying out a task which you find unpleasant (i.e., in that job you incur a disutility equivalent to 2 an hour).

1. (i)What is your reservation wage in your current job?
2. (ii)If your current job paid you a wage of 6 an hour, what would be the extentof your employment rent in this job?
3. (iii)If in your current job (with your wage of 6 an hour) the manager was able to observe your effort and require you to work with an effort level that imposed on you a disutility equivalent to 2 an hour, how might you respond? Explain your answer

Thanks!