Suppose a firm's technology requires it to hire 100 workers regardless of the wage level. The firm, however, has found that worker productivity is greatly affected by its wage. The historical relationship between the wage level and the firm's output is given by:
Wage Rate Units of
Output
$8.00................. 65
$10.00................. 80
$11.25................. 90
$12.00................. 97
$12.50................. 102
What wage level should a profit-maximizing firm choose? What happens to the efficiency wage if there is an increase in the demand for the firm's output?