(Appendix 12.A) A firm identifies the following relationship between the real wage it pays and the effort exerted by its workers.
Real Wage Effort
8.............................. 7
10............................. 10
12............................. 15
14............................. 17
16............................. 19
18............................. 20
The marginal product of labour for this firm is

where E is the effort level and N is the number of workers employed. If the firm can pay only one of the six wage levels shown, which should it choose? How many workers will it employ? There are 200 workers in the town where the firm is located, all willing to work at a real wage of 8. Does this change your answer to the first part of this question? If so, how?

E( 100-N) 15 MPN = ,