Could you please explain the solution? 14. On a certain market two types of workers are available: they are characterized by their unit production costs which are t-2, and T=3, respectively, for any production level q. Moreover, the respective frequencies of the two types are given by the distribution prob(t)=1/3, prob(T)=2/3, and a principal with a revenue function S(q)= q+2q2/3 knows such a distribution but is unable to distinguish (ex-ante) between type t-workers and type T-workers. Then, the optimal contract proposed by the principal will require the following production levels for typet and type T: a) 64/27 , 512/3375 b) 60/27, 1/6 c) it depends on missing parameters

Could you please explain the solution? 14. On a certain market two types of workers are available: they are characterized by their unit production costs which are t-2, and T=3, respectively, for any production level q. Moreover, the respective frequencies of the two types are given by the distribution prob(t)=1/3, prob(T)=2/3, and a principal with a revenue function S(q)= q+2q2/3 knows such a distribution but is unable to distinguish (ex-ante) between type t-workers and type T-workers. Then, the optimal contract proposed by the principal will require the following production levels for typet and type T: a) 64/27 , 512/3375 b) 60/27, 1/6 c) it depends on missing parameters

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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