Essay
Mr. Barnes operates a power plant in the local market. His marginal revenue of average employee effort level is: MR(e) = 25 - e. The marginal cost of effort to Mr. Barnes is: MC(e) = w. Employees set their effort level according to: e = 
, where 
is the average wage at all other jobs in the local market. Currently, this average is $7.50. If Mr. Barnes pays a wage rate of $7.50, is he maximizing profits? If not, what wage rate should Mr. Barnes pay?
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If Mr. Barnes sets the wage rate to $7.5...View Answer
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