Q13 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%

Given; Low effort:-Cost of workers= $0Prob (Rev=$200)=80%Prob (Rev=$600)=20%High effort:-Cost of…

A risk-neutral worker can choose to exert either low or high effort. The manager cannot observe the worker's action, but the manager can observe the realized revenue for the firm - either $200 or $600. The relationship between effort and revenue is shown below. Use this information to answer questions #12 and #13. High Effort Cost for worker $40 Low Effort Cost for worker $0 Prob(Rev = $200) = 80% Prob(Rev = $600)= 20% Prob(Rev = $200) = 20% Prob(Rev = $600) = 80% 12. Instead of offering a flat wage, the manager offers the worker 20% of the firm's realized revenue. Given this labor contract, the firm's expected profit will be a. $224 b. $280 c. $376 d. $416 e. $520 13. 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%

A risk-neutral worker can choose to exert either low or high effort. The manager cannot observe the worker's action, but the manager can observe the realized revenue for the firm - either $200 or $600. The relationship between effort and revenue is shown below. Use this information to answer questions #12 and #13. High Effort Cost for worker $40 Low Effort Cost for worker $0 Prob(Rev = $200) = 80% Prob(Rev = $600)= 20% Prob(Rev = $200) = 20% Prob(Rev = $600) = 80% 12. Instead of offering a flat wage, the manager offers the worker 20% of the firm's realized revenue. Given this labor contract, the firm's expected profit will be a. $224 b. $280 c. $376 d. $416 e. $520 13. 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%

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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