Question

Efficiency-wage theory suggests that paying: a) high wages might be profitable because they lower the efficiency of a firm’s workers. b) high wages might be profitable because they raise the efficiency of a firm’s workers. c) low wages might be profitable because they raise the efficiency of a firm’s workers. d) low wages might be profitable because they lower the efficiency of a firm’s workers.

Answer 1

Answer: b - high wages might be profitable because they raise the efficiency of a firm’s workers

Explanation:

The efficiency wage theory suggests that increasing wages increases labour productivity which can increase profitability of the firm.

High wages increases the retention rate of labour and their productivity.