A firm sells its output Q for a price of p=1. It pays a piece wage...

Transcribed Image Text:

A firm sells its output Q for a price of p=1. It pays a piece wage w to its single worker. Its worker produces Q(e)=4e units of output, where e is the worker's effort. The cost of effort is C(e)= 2e. The worker is free to choose any level of effort, including 0. The worker's outside option is 0. Treat all variables as continuous. What wage does the firm pay? A firm sells its output Q for a price of p=1. It pays a piece wage w to its single worker. Its worker produces Q(e)=4e units of output, where e is the worker's effort. The cost of effort is C(e)= 2e. The worker is free to choose any level of effort, including 0. The worker's outside option is 0. Treat all variables as continuous. What wage does the firm pay?