Question

Suppose that, ceteris paribus, jobs differ according to the amount of physical exertion a worker must perform. An upward sloping hedonic wage function will exist relating the wage rate to the level of physical exertion if:

	A.	workers prefer jobs with less physical exertion.
	B.	it is costly for firms to reduce the level of physical exertion.
	C.	workers are able to move among jobs with different levels of physical exertion.
	D.	All of the above are correct.
	E.	None of the above is correct.

If the number of firms in an industry rises, the equilibrium wage rate will:

	A.	increase.
	B.	remain the same.
	C.	change in an unpredictable manner.
	D.	decrease.

Answer 1

Under a hedonic wage function that slopes upwards, workers are willing to work at higher wage rate if they have to bear more exertion so that they in a way abhore exertion. Secondly, workers can move among jobs with different levels of physical exertion. If firm reduces the level of physical exertion they have to hire more capital so that the cost is increased. Hence option D is correct.

With number of firms is increased, they demand more labor so that demand function shifts rightwards. Hence wage is expected to rise. Option A is correct.