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Let's say that you own a restaurant with 3 employees and you are trying to decide between two different production processes and two di erent pay schemes.

(a) Your rst idea is to have all 3 employees cook, clean, and wait tables. This implies that your production function is Q = q1 + q2 + q3, which means that your employees are substitutes.

i. Assume that you can monitor your employees output perfectly if you choose to, so that you can know each individual qi. If your employees are self-interested, how much output would you expect each individual worker to produce without monitoring?

ii. If you wanted to increase Q, what kind of pay scheme might you try? describe.
iii. From the point of view of the workers, what kind of game is this?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M945392

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