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There is a large number N of identical competitive firms. The representative firm maximises profits: = Y wL, where Y is output, L is labour
There is a large number N of identical competitive firms.
The representative firm maximises profits: = Y wL, where Y is output, L is labour and w is wage.
The firm's output is given by Y = F(eL), where e is effort. Note that the production function satisfies F () > 0, F ()
The effort depends on the wage w offered to the worker, the average wage paid in the market, wa, and the unemployment rate,
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