Pay for performance means that employees compensation closel

\"Pay for performance” means that employees\' compensation closely reflects that amount of value derived from each employee\'s effort. In economic terms, the value derived from employee effort is measured by net marginal revenue product. It is the amount of profit generated by the employee, after accounting for employment costs. Assume workers in an apple orchard are paid \'piece wage\', i.e., say in an orchard each worker will receive $ 0.15 per apple picked from the tree. On the other hand, assume there is another orchard that practices \'time wage\', i.e., pays workers a certain amount (say, $15) for per hour of work. Of course, \'piece wage\' is more conducive to foster a culture of \'Pay for performance\'. But, in real life for various real reasons, \'piece wage\' pay-system may not always be most feasible pay-system.” Provide argument for or against the statement above in the light of your assigned reading for the week and from your personal thoughts and experience.  

Determine whether the following production functions exhibit constant, increasing, or decreasing returns to scale: A) Q = 0.5X +2Y+40Z; B) Q = 3L +10K +500; C) Q = 4A+6b+8AB; D) Q = 7L2+5LK+2K2

Solution

\'piece wage\' pay-system may not always be most feasible pay-system.”

arguments in favour

this will give incentive to employee to enhance their performance

increase competition among employees and the performance will improve

arguments against

due to increase in competition, this will lead to enviness and quarrel between employees

sometimes quality of work done by employees also suffer due to overspeeding of work to complete targets and earn more

ans 2

a) Q = 0.5X +2Y+40Z

suppose if inputs double

Q₁ = 0.5(2X) +2(2Y) +40(2Z) = 2 (0.5X +2Y+40Z) =2Q

so output also double

constant returns to scale

B) Q = 3L +10K +500

suppose if inputs double

Q₁ = 3(2L) +10(2K)+500 < 2(3L +10K +500)

so output increases but less than double

so decreasing returns to scale operates here

C) Q = 4A+6b+8AB

suppose if inputs double

Q₁ = 4(2A) +6(2B) + 8(2A)(2B) >2 (4A+6b+8AB) or 2Q

so output more tha double so increasing returns to scale

D) Q = 7L²+5LK+2K²

suppose if inputs double

Q₁ = 7 (2L)²+ 5(2L) (2K)+ 2(2K)² = 4 (7L²+5LK+2K²) = 4Q> 2Q

so output more tha double so increasing returns to scale