## Step 1 Understanding Efficiency Wage Theory Efficiency Theory suggests that firms pay wages above the market level to motivate employees, discourage shirking, and reduce turnover. The main goal is to increase worker productivity and loyalty. *Explanation:* Paying higher wages gives workers an incentive work harder and remain the firm, as they would not want to lose a well-paying job. --- ## Step2: Analyzing the Options - **A. Lower productivity because workers reduce effort:** This is contrary to the theory. - **B. Higher worker effort and reduced turnover:** This matches the theory’s prediction. - **C. Labour supply decreases because wages are too high:** Usually, higher wages attract more labor supply, not less. - **D. Firms face no additional cost because wages do not affect behavior:** The theory is based on the idea that wages DO affect behavior. *Explanation:* Option B is the only one consistent with the efficiency wage theory, which expects higher worker effort and reduced turnover from paying above-market wages. --- ## **Final Answer:** **B. Higher worker effort and reduced turnover**