Alteration of the Feasible Set by a Minimum Wage

Activity: Analyzing the Effect of a Minimum Wage Using the No-Shirking Wage Curve Model

A Firm's Option to Offer a Wage Higher Than the No-Shirking Minimum

The Wage-Setting Model

The Firm's Constrained Choice Problem of Profit Maximization

In a firm's employment model, there is a minimum wage required to motivate employees to work effectively, and this wage increases as the number of employees grows. This relationship is represented by an upward-sloping 'no-shirking wage curve' on a graph with employment on the horizontal axis and wage on the vertical axis. The 'feasible set' for the firm consists of all wage and employment combinations that are on or above this curve. Given the following scenarios, which one represents a combination that is outside the firm's feasible set?

A firm determines that for a specific level of employment, the minimum wage required to prevent workers from shirking is $20 per hour. According to the model that defines the firm's possible choices, offering a wage of $22 per hour for that same level of employment would be considered an infeasible choice.

Comparing Feasible Employment Strategies

Analyzing a Firm's Hiring Decision

Analyzing Choices within the Feasible Set

A firm's choices of wage and employment are constrained by a 'no-shirking wage curve,' which shows the minimum wage required to ensure employees work effectively at each level of employment. The 'feasible set' includes all wage and employment combinations on or above this curve. Match each described wage-employment combination to its status relative to the firm's feasible set.

Rationale for the Feasible Set in Employment Decisions

Rationale for the Infeasible Region in the Wage-Setting Model

In the context of a firm's employment decisions, the boundary of the feasible set is defined by the 'no-shirking wage curve.' Any wage and employment combination located directly on this curve represents the ________ wage the firm must pay for a given level of employment to ensure workers are productive.

Evaluating a Consultant's Employment Strategy

Figure 6.12: The School's Feasible Set of Wage and Employment