According to efficiency wage models,the firm's profits will increase whenever the wage causes:
A)worker productivity to increase by a larger proportion than the wage increase
B)worker productivity to increase
C)worker turnover to fall
D)worker nutrition to increase

Question

Quizplus · Accepted Answer

Efficiency wage models suggest that firms can improve their profits by offering wages higher than the market equilibrium level. This high wage motivates workers to increase productivity and reduces worker turnover, which in turn increases the firm's profits. However, the wage increase must not be excessive, as it will lead to diminishing marginal returns to productivity. Therefore, the wage increase must be proportionate to the increase in productivity. Thus, choice A is the best answer, as it states that the wage should cause worker productivity to increase by a larger proportion than the wage increase.

According to Efficiency Wage Models,the Firm's Profits Will Increase Whenever