The effort of a firm's workers depends on their real wage according to the following schedule.The marginal product of labor is MPN = E(400 - 4N)/30.(a)What is the efficiency wage?(b)How many workers will the firm hire?(c)Suppose an adverse productivity shock reduces the marginal product of labor to MPN = E(360 - 4N)/30. How would your answers to parts (a) and (b) change?

What will be an ideal response?

The following table shows the real wage (w), the effort level (E), and the effort per unit of real wages (E / w).

(a)	The firm will pay a wage of 20, since that wage provides the maximum effort per unit of the

real wage (E / w = 1.25).

(b)	The firm will employ 94 workers, since that is the number of workers for which w = MPN; 20 =

25(400 - 4N)/30, so 4N = 376, so N = 94.

(c)	No effect on efficiency wage; employment falls to N = 84.