Suppose the Probability of an Employee Being Caught Shirking,q,is a Function

question 55

Essay

Suppose the probability of an employee being caught shirking,q,is a function of the employer's monitoring,M,such that q = M/100.If workers must put up a $1,000 bond and the gain to each worker from shirking is $100,what is the employer's optimal level of monitoring that is just sufficient to discourage shirking?

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Definitions:

Direct Labour

The workforce directly involved in producing goods or delivering services, whose costs are directly attributable to the products or services.

Manufacturing Overhead

All manufacturing costs except direct materials and direct labor.

Obsolete Desk Calculators

Calculators that are no longer used or supported because newer models or technology have replaced them.