A profit-maximizing firm that uses an efficiency wage and monitors will increase the wage it pays its workers until
A) the worker requires no monitoring.
B) the worker receives the market wage and requires full-time monitoring.
C) the cost of monitoring the worker equals the efficiency wage.
D) the change in the workers' productivity from being monitored times the per time unit cost of monitoring equals one.
QUESTION 2An efficiency wage premium serves the same function as a bond because, just as with a bond, the premium represents
A) the amount the employee loses if caught shirking.
B) the expected value of the amount the employee loses if he shirks.
C) the cost of monitoring the employee.
D) the gain to the employee if he shirks.
QUESTION 3The benefit to employers of deferred payments is that
A) adverse selection is eliminated.
B) employers cannot engage in any opportunistic behavior.
C) these payments raise the cost of being fired, so more monitoring is needed.
D) these payments raise the cost of being fired, so less monitoring is needed.
QUESTION 4Which of the following would NOT be used by firms to deter shirking?
A) requiring employees to post a bond
B) offering a bonus after five years of service
C) paying more than the market wage
D) paying less than the market wage
QUESTION 5Which of the following workers is most likely to be asked to post a bond?
A) construction contractor
B) fast food worker
C) sanitation worker
D) book author
QUESTION 6As the probability of detecting shirking increases, the size of the bond necessary to deter shirking
A) also increases.
B) stays the same.
C) decreases.
D) increases at an exponential rate.
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