Q8 Efficiency wages 11 Points Suppose now that a typical firm i has a production function given by: 1-a Y; = AK, (E; N;) where E; denotes the effort of a worker employed at firm i, N; represents the labor employed at firm i, and K denotes the amount of capital that a firm has. Each firm The effort of the workers at firm i is a function of the wage that firm i pays and the reservation wage WR, a measure of the outside opportunities that workers at firm i face: E; = (Wi-WR) where 0