D4) Assume, in producing one unit of a good X, an agent can exert either the good effort (G) or the bad effort (L), which cause production defects with probability 0.25 or0.75 respectively. His utility function in effort e and wage w is U (w, e) = 100 - (10/w) - c(e) where c(G) = 2 for the good effort and c(L) = () for the badeffort. Production defects are contractible and so can be included in the agent's contract, but effort is not contractible. Good X sells for $20 if there are no defects and$0 otherwise. The principal is risk-neutral and likes profit. Assume the agent has a reservation utility/outside option of U=0.Assume for this question the principal wants to achieve the bad effort at the lowest cost then what is: the expected wage if effort is contractible minus the expectedwage if effort is not contractible? Answer to at most 2 decimal places (rounded), do not include a dollar sign in your answer.Answer:

In this economic scenario, an agent can choose between two efforts, "good" or "bad," affecting…

Assume for this question the principal wants to achieve the bad effort at the lowest cost then what is: the expected wage if effort is contractible minus the expected wage if effort is not contractible? Answer to at most 2 decimal places (rounded), do not include a dollar sign in your answer. Answer:

Assume for this question the principal wants to achieve the bad effort at the lowest cost then what is: the expected wage if effort is contractible minus the expected wage if effort is not contractible? Answer to at most 2 decimal places (rounded), do not include a dollar sign in your answer. Answer:

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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