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An Efficiency Wage Is an Above-Market Wage That Spurs Greater

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An efficiency wage is an above-market wage that spurs greater work effort and gives the firm more profits because of lower wage costs per unit of output.


Definitions:

Labor Per Unit

The amount of labor required to produce a single unit of output.

Cumulative Number

A total that increases over time by adding sequential amounts.

Lagrangian Technique

A mathematical method used in economics and engineering to find the maximum or minimum values of a function subject to constraints.

Optimal Capital/Labor Ratio

The most efficient mix of capital and labor that maximizes output or minimizes cost for producing a given level of output.

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