1. Understanding how shirking decreases team output Neha sells bottled water from a small stand by the beach. On the last day of summer vacation, many people are on the beach, and Neha realizes that she can make a lot more money this day if she hires someone to walk up and down the beach selling water. She finds a college student named Lorenzo and makes him the following offer: They'll each sell water all day and split their earnings (revenue minus the cost of water) equally at the end of the day. Neha knows that if they both work hard, Lorenzo will earn $90 on the beach and Neha will earn $180 at her stand, so they will each take home half of their total revenue: $135. If Lorenzo shirks, he'll generate only $50 in earnings. Neha does not know that Lorenzo estimates his personal cost (or disutility) of working hard as opposed to shirking at $25. $90+-$180 2 Once out of Neha's sight, Lorenzo faces a dilemma: work hard (put in full effort) or shirk (put in low effort). In terms of Lorenzo's total utility, it is better for him to Taking into account the loss in utility that working hard instead of shirking. shirk work hard enzo, Neha and Lorenzo together better off if Lorenzo works hard Neha knows Lorenzo will shirk if unsupervised. She considers hiring her good friend Carrie to keep an eye on Lorenzo. The most Neha should be willing to pay Carrie to supervise Lorenzo, assuming supervision is sufficient to encourage Lorenzo to work hard, is It turns out that Neha's friend Carrue is unavilable that day, so Neha cannot find a reliable person to watch Lorenzo. Which of the following arrangements will ensure that Lorenzo works hard without making Neha any worse off than she is when Lorenzo shirks? O Allow Lorenzo to keep 73% of the revenue from the bottles of water he sells instead of 50% O Pay Lorenzo $70, regardless of how many bottles of water he sells O Make Lorenzo promise to work hard O Allow Lorenzo to keep 70% of the revenue from the bottles of water he sells instead of 50%

1. Understanding how shirking decreases team output Neha sells bottled water from a small stand by the beach. On the last day of summer vacation, many people are on the beach, and Neha realizes that she can make a lot more money this day if she hires someone to walk up and down the beach selling water. She finds a college student named Lorenzo and makes him the following offer: They'll each sell water all day and split their earnings (revenue minus the cost of water) equally at the end of the day. Neha knows that if they both work hard, Lorenzo will earn $90 on the beach and Neha will earn $180 at her stand, so they will each take home half of their total revenue: $135. If Lorenzo shirks, he'll generate only $50 in earnings. Neha does not know that Lorenzo estimates his personal cost (or disutility) of working hard as opposed to shirking at $25. $90+-$180 2 Once out of Neha's sight, Lorenzo faces a dilemma: work hard (put in full effort) or shirk (put in low effort). In terms of Lorenzo's total utility, it is better for him to Taking into account the loss in utility that working hard instead of shirking. shirk work hard enzo, Neha and Lorenzo together better off if Lorenzo works hard Neha knows Lorenzo will shirk if unsupervised. She considers hiring her good friend Carrie to keep an eye on Lorenzo. The most Neha should be willing to pay Carrie to supervise Lorenzo, assuming supervision is sufficient to encourage Lorenzo to work hard, is It turns out that Neha's friend Carrue is unavilable that day, so Neha cannot find a reliable person to watch Lorenzo. Which of the following arrangements will ensure that Lorenzo works hard without making Neha any worse off than she is when Lorenzo shirks? O Allow Lorenzo to keep 73% of the revenue from the bottles of water he sells instead of 50% O Pay Lorenzo $70, regardless of how many bottles of water he sells O Make Lorenzo promise to work hard O Allow Lorenzo to keep 70% of the revenue from the bottles of water he sells instead of 50%

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter16: Bargaining

Section: Chapter Questions

Problem 8MC

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