Figure 6.18: A Rise in the Cost of Effort
Figure 6.18 graphically illustrates a firm's response to an increased cost of effort for its employees, which could be caused by factors like declining morale. Because the firm must pay a higher wage to discourage shirking when effort is more costly, the no-shirking wage curve shifts upward. The diagram shows this shift moving the firm's profit-maximizing equilibrium from an initial point E to a new point F. At this new equilibrium, the wage is higher, employment is lower, and the firm is on a lower isoprofit curve, signifying reduced profit.
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The Economy 2.0 Microeconomics @ CORE Econ
Ch.6 The firm and its employees - The Economy 2.0 Microeconomics @ CORE Econ
Introduction to Microeconomics Course
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Figure 6.18: A Rise in the Cost of Effort