Select one or more: a. The blue line passing through the axis represents the eff

Question

Select one or more:

a. The blue line passing through the axis represents the effort per dollar spent. The employer wants it to be as steep as possible.

b. The Nash equilibrium is at point n. The employer offers wage wN and the worker responds with an effort level of eN.

c. The Nash equilibrium is Pareto efficient.

d. The Nash equilibrium is Pareto inefficient.

e. The blue line passing through the axis represents the effort per dollar spent. The employer wants it to be as flat as possible.

Employee's ICC, or Best Response Function e A, a Incomplete Contract Nash equilibrium e de Iso-profit: w dw Slope of iso-v =-mrs Vw Ve 0 w=B/s Wage, w

Explanation / Answer

a. Is correct, the employer wants the iso-profit line to be as steep as possible, so that he gets a large effort from the employee for minimum wage spent.

b. This is correct, the Nash equilibrium is at point n. No player can increase his payoff by changing his actions.

c. This is correct, the Nash equilibrium is pareto efficient. It is not possible to make a player better off without hurting the other player.

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