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Consider a workplace that has two workers who can work as a team. Each worker can put in effort; worker 1's effort is labelled e1 and worker 2's as e2. These effort choices are made simultaneously. Output of the team is 8e1 + 4e2. Each worker bears the cost of their effort and has a utility of Ui = wi - ei2, where i = 1,2 and wi is the wage that the worker receives.

a. What are the first-best (surplus-maximising) efforts for each worker?
b. What are the efforts that each workers put in. Explain the differences (or similarities) between your answer here and that for part a.

Sagot :

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