An Objective Function Reflects the Relevant Cost of Labor Hours

question 19

Multiple Choice

An objective function reflects the relevant cost of labor hours used in production rather than treating them as a sunk cost.The correct interpretation of the dual price associated with the labor hours constraint is the

• A)maximum premium (say for overtime)over the normal price that the company would be willing to pay.
• B)upper limit on the total hourly wage the company would pay.
• C)reduction in hours that could be sustained before the solution would change.
• D)number of hours by which the right-hand side can change before there is a change in the solution point.

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Definitions:

No Shirking Constraint

A concept in labor economics that suggests higher wages motivate employees to work harder, reducing shirking on the job.

Efficiency Wage Rate

A wage rate set above the market-clearing level by employers to boost worker productivity, discourage shirking, and reduce turnover.

Wage Rigidity

Wage rigidity refers to the phenomenon where wages do not adjust quickly or easily to changes in labor market conditions, often due to contracts, norms, or regulations.

No Shirking Constraint

An economic principle suggesting that wages must be set at a level that discourages employees from shirking their duties.