+ Question 6 Part A [5 marks]: Consider a firm purely interested in keeping costs low. Hence, labour costs are kept to a minimum as they only employ low-skilled labour. Recently, the company has fallen on hard times and has asked for your assistance. The company has two divisions: a sales division and a production division. In the sales division, low-skilled employees are paid $12 per hour and they generally sell 4 units per hour. The firm also believes in equality and pays the same to its production division who typically produce 6 units per hour. Notably, high-skilled employees could be hired into either division at $24 per hour. The only difference between the two divisions is capital. Workers in the production division interact with capital valued at $84 per hour. Assuming the firm wishes to maximize profit, is hiring the cheapest available labour the best strategy? Briefly explain. Moreover, how productive must high-skilled workers be in order for them to be the better option (i.e. how much must they produce per hour)? Finally, consider that high-skilled workers are only available from outside the province and thus search costs for the firm will be relatively high. Intuitively, how will this affect your results from above? Part B: (5 marks] Consider a manager who runs their business from another country. In terms of compensation, the manager feels that paying workers more than they are worth (i.e., more than MRPL) could help produce high levels of effort. He feels this may be important since he will not always be around to monitor worker behaviour. What type of model/theory is this manager considering based on the above information? Furthermore, the manager is curious to know exactly how much they should pay labour. Derive an equation for the wage that would consist of: the cost of high effort, the probability of being caught shirking, and an alternative wage (assume the cost of low effort is zero). Do not simply re-write the formula discussed in class - i.e. show where it came from. 14->