A risk-neutral worker can choose to exert either low or high effort. The manager cannot observe the worker'saction, but the manager can observe the realized revenue for the firm - either $200 or $600. The relationshipbetween effort and revenue is shown below. Use this information to answer questions #12 and #13.High EffortCost for worker= $40Prob(Rev = $200) = 20%Prob(Rev = $600) = 80%Low EffortCost for worker= $0Prob(Rev = $200) = 80%Prob(Rev = $600) = 20%12. Instead of offering a flat wage, the manager offers the worker 20% of the firm's realized revenue. Given thislabor contract, the firm's expected profit will bea. $224b. $280c. $376d. $416e. $52013. What's the smallest percentage of revenue the firm can offer to incentivize the worker to choose high effort?a. 6%b. 10%с. 16.7%d. 20%е. 33.3%

The following information has been provided in the question: Realized revenue of the firm= $200 or…

Answered: A risk-neutral worker can choose to…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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