The next two questions refer to the following problem. A risk-neutral worker can provide high effort (at personal cost $14) or low effort (at zero cost). A high effort worker contributes $X to the company’s revenues, a low effort worker contributes $25. If the worker chooses low effort, then with probability 0.7 he is detected by his supervisor and fired. If fired, the worker can earn $10 without providing high effort. (SHOW STEPS PLEASE)
1. What is the lowest efficiency wage, weff , that can induce the worker to provide high effort?
A. weff = $40
B. weff = $30
C. weff = $20
D. weff = $15
E. weff = $10
2. What is the lowest value of X for which the firm is willing to pay the above efficiency wage?
A. X = $50
B. X = $45
C. X = $40
D. X = $35
E. X = $30