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hello in this video we're going to look at incentive pay and this time look at piece rates a piece rate is compensating workers based on how much output they produced compensation is a linear function of performance you might earn ten dollars for each product assembled or earn ten percent of sales commission for each car sold or television sold for example if the piece rate leads to a wage less than the worker's value of marginal product the worker will shirk and find another firm that pays the value of her marginal product when the piece rate equals a product's price the efficient level of work effort is put forth here's our example a firm values each assembled product at twenty four dollars what they can sell it at worker a's marginal cost of effort is given by mc equals 2a and worker b's marginal cost of effort is given by mc equals 3a where a is the number of assembled products per week how much does each worker earn per week if paid

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