Question

A firm offers a pick and drop facility for its workers.

Why would a profit-maximizing firm opt for such a policy? Explain in words.

Would the workers respond to this announcement? Show in a standard diagram with wage on the x-axis and effort on the y-axis. With the aid of the diagram you have drawn. Show what would happen to the equilibrium wage and effort?

A firm offers a pick and drop facility for its workers.

Answer 1

A> A firm opts for pick and drop facility for it's workers. This facilities causes additional costing , of which , some part is extracted out of monthly salary of the emplyee and some of it is paid by the company. The reason for this additional cost bearing by the company is that by providing such benefits to the employee , the incentive of work is raised for the perticular firm, attracting the cream crowd of workers . This results in efficiency of the work space and hence a greater output and more profits.

B>When at initial stage, the wage and effort graph for individual working in firm is inverted U shapped. As the wage of individual rises, the efforts are falling after reachinf a peak, because position of worker working for so song is more secure and has more manegerial powers due to experience , which need much less efforts than the initial days.

If the benefits are added, the effort curve rises than initial( shown by green lines). Efforts are proportional to growth of firm and hence profit extraction. The level of equilibrum for firm and individual is E , which is the point where tangent line to it will be parallel to x axis. Here efforts are maximum but the wage is not maximum, hence profit maximization of firm is maximum. The individual works thorugh it in order to reach to higher wage rate.