2. Now assume that CC Inc. is hiring Marie as a consultant to computerize its office operations. Everything is the same in Marie's situation as in Stephan's except that her disutility of effort is different. Specifically, C(E)=E²/10. a) How much effort will Marie exert if her commission rate is 20% ? 100%? Does effort depend on a? b) Now suppose that Marie and CC are negotiating the terms of her contract (i.e. the level of a and b) before she starts. Before they settle on who gets exactly what in the end, they agree that, whatever contract they ultimately choose, it must be efficient, i.e. it must maximize the sum of CC's profits and Marie's utility. If the contract is efficient, what will be the level of b? Comment. c) Suppose now that, to retain Marie, CC Inc. must offer her a utility level of at least 1 unit (because this is what she can get working for another firm). What must a be? If Marie's alternative utility is 5 units, will she work for CC Inc?

2. Now assume that CC Inc. is hiring Marie as a consultant to computerize its office operations. Everything is the same in Marie's situation as in Stephan's except that her disutility of effort is different. Specifically, C(E)=E²/10. a) How much effort will Marie exert if her commission rate is 20% ? 100%? Does effort depend on a? b) Now suppose that Marie and CC are negotiating the terms of her contract (i.e. the level of a and b) before she starts. Before they settle on who gets exactly what in the end, they agree that, whatever contract they ultimately choose, it must be efficient, i.e. it must maximize the sum of CC's profits and Marie's utility. If the contract is efficient, what will be the level of b? Comment. c) Suppose now that, to retain Marie, CC Inc. must offer her a utility level of at least 1 unit (because this is what she can get working for another firm). What must a be? If Marie's alternative utility is 5 units, will she work for CC Inc?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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