Question

onsider three firms identical in all aspects (including the probability with which they discover a shirker), except that monitoring costs vary across the firms. Moni-toring workers is very expensive at Firm A, less expensive at Firm B, and cheapest at Firm C. If all three firms pay efficiency wages to keep their workers from shirk-ing, which firm will pay the greatest efficiency wage? Which firm will pay the smallest efficiency wage?

Answer 1

Firm A will pay the greatest and firm C will pay the smallest.

Step-by-step explanation:

Shirking can be defined as the act of neglecting or not doing a job properly so it is an unwanted behavior at every firm.

Even though the probability of discovering a shirker is the same at each firm, firm A pays the highest amount to their monitoring workers who keep track of the employees and their efficiency.

This wage difference can act as a performance booster for monitoring workers and can lead to the ones at firm A to be more strict causing the workers to be more productive. Therefore firm A will need to pay the greatest efficiency wage to keep their employees motivated. And firm C will pay the smallest efficiency wage.

I hope this answer helps.