10 The figure below depicts the effect of an increase in the

10. The figure below depicts the effect of an increase in the unemployment benefit on the workers\' best response curve, when the unemployment rate is 12%. Indicate True or False: a. The firm\'s profit level falls. b. The workers\' reservation wage falls. c. The efficiency wage at any given level of employment falls. d. The firm sets a lower efficiency wage. Best response function with U-12% and low Best response function with U-12% and high unemployment benefit Hourly wage W WH Reservation Wage set by wage firm

Solution

Answer A- The statement is True. As for the same level of effort more wages are given and hence the firm looses it\'s profit.

Answer B- The satatement is False. More wages are ofered to the workers for the same level of effort.

Answer C- The statement is False. As per the graph shown above the efficiency wage increases as the number of effort per hour increases.

Answer D-The statement is True. As per the graph shown above the efficiency wage is set on a lower scale by the firm because the curve has shifted.