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The equations below provide information for a worker and a firm. Use the equations to answer parts a through d. Cost of effort for worker:
The equations below provide information for a worker and a firm. Use the equations to answer parts a through d. Cost of effort for worker: C(q) = 4q2 Net Revenue for firm: Net Revenue = 250q Best alternative for worker: u0= 200 a. Define, calculate, and graph the firm's marginal net revenue and the employee's marginal cost of effort. (5 points) b. What is the optimal piece rate, and what level of output maximizes profit? Support this with your graph, and explain what makes the piece rate "optimal". (5 points) c. What salary, if any, will the firm choose to pay the employee? Explain how you derived this, and interpret the meaning of this salary. (5 points) d. Does the "optimal" piece rate satisfy Pareto efficiency? Explain and support your answer with a graph showing the appropriate area of total surplus (worker surplus and firm surplus). (5 points)
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