Question

11. Information in labor marketsThe marginal productivity theory states that if a firm operates in a perfectly competitive factor market, it pays each factor of production its marginal revenue product. However, this theory may fail to hold if factor markets are not competitive.One circumstance under which factor markets may fail to be competitive is if there is imperfect information. Which of the following are examples of how information problems can lead to inefficient outcomes? Check all that apply.1. Firms may discriminate against workers or suppliers they don't trust.If a firm can't tell who its most productive workers are, it must pay everyone 2. the same wage.3. Workers who are actually productive may not be hired if they don't have the credentials required by a screening process.

Answer 1

Two examples of inefficient outcomes derived from information problems are when firms pay every employee the same because they do not know their rate of production (option 1), and when workers are not hired due to lack of credentials (option 2).

In businesses, productivity and outcomes depend on different factors such as:

• Resources.
• Workers.
• Management.
• Information.
• Among others.

From these factors, one of the most important is information because based on this, the other factors are appropriately or inappropriately managed. Due to the above, information issues might affect productivity, two examples are:

• Firms pay every employee the same because they do not know their rate of production: This problem derives from the lack of information about employees' rate of production and can increase costs or decrease production.
• Workers are not hired due to lack of credentials: Lack of information about candidates' skills can make firms not hire the best employees and this indirectly reduces productivity.

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