Which one of the following statements about efficiency wages is correct?
A. An efficiency wage is a "wage" that contains a profit-sharing component as well as traditional hourly pay.
B. An efficiency wage is an above-market wage that minimizes a firm's labor cost per unit of output.
C. An efficiency wage is a wage that automatically rises with the national index of labor productivity.
D. An efficiency wage is a wage payment necessary to compensate workers for risk of injury on the job.
Correct! Option B is the correct statement about efficiency wages. An efficiency wage is an above-market wage that a firm pays to its workers in order to increase their productivity and minimize labor cost per unit of output. By paying higher wages, the firm motivates and incentivizes workers to perform at their best, leading to increased productivity and potentially lower overall labor cost for the firm in the long run. So, option B is the correct choice.
Your answer is correct. An efficiency wage is an above-market wage that minimizes a firm's labor cost per unit of output. This is done by attracting and retaining more productive workers, reducing turnover, and increasing worker motivation and effort.
