Deborah sells bottled water from a small stand by the beach. On the last day of summer vacation, many people are on the beach, and Deborah realizes that she can make a lot more money this day if she hires someone to walk up and down the beach selling water. She finds a college student named Carlos and makes him the following offer: They'll each sell water all day and split their earnings (revenue minus the cost of water) equally at the end of the day. Deborah knows that if they both work hard, Carlos will earn $90 on the beach and Deborah will earn $180 at her stand, so they will each take home half of their total revenue: $90+$180 = $135. If Carlos shirks, he'll generate only $50 in earnings. Deborah does not know that Carlos estimates his personal cost (or disutility) of working hard as opposed to shirking at $25. 2 Once out of Deborah's sight, Carlos faces a dilemma: work hard (put in full effort) or shirk (put in low effort). In terms of Carlos's total utility, it is better for him to Taking into account the loss in utility that working hard brings to Carlos, Deborah and Carlos together instead of shirking. better off if Carlos works hard Deborah knows Carlos will shirk if unsupervised. She considers hiring her good friend Carrie to keep an eye on Carlos. The most Deborah should be willing to pay Carrie to supervise Carlos, assuming supervision is sufficient to encourage Carlos to work hard, is It turns out that Deborah's friend Carrue is unavilable that day, so Deborah cannot find a reliable person to watch Carlos. Which of the following arrangements will ensure that Carlos works hard without making Deborah any worse off than she is when Carlos shirks? O Allow Carlos to keep 70% of the revenue from the bottles of water he sells instead of 50% O Allow Carlos to keep 73% of the revenue from the bottles of water he sells instead of 50% O Make Carlos promise to work hard
Deborah sells bottled water from a small stand by the beach. On the last day of summer vacation, many people are on the beach, and Deborah realizes that she can make a lot more money this day if she hires someone to walk up and down the beach selling water. She finds a college student named Carlos and makes him the following offer: They'll each sell water all day and split their earnings (revenue minus the cost of water) equally at the end of the day. Deborah knows that if they both work hard, Carlos will earn $90 on the beach and Deborah will earn $180 at her stand, so they will each take home half of their total revenue: $90+$180 = $135. If Carlos shirks, he'll generate only $50 in earnings. Deborah does not know that Carlos estimates his personal cost (or disutility) of working hard as opposed to shirking at $25. 2 Once out of Deborah's sight, Carlos faces a dilemma: work hard (put in full effort) or shirk (put in low effort). In terms of Carlos's total utility, it is better for him to Taking into account the loss in utility that working hard brings to Carlos, Deborah and Carlos together instead of shirking. better off if Carlos works hard Deborah knows Carlos will shirk if unsupervised. She considers hiring her good friend Carrie to keep an eye on Carlos. The most Deborah should be willing to pay Carrie to supervise Carlos, assuming supervision is sufficient to encourage Carlos to work hard, is It turns out that Deborah's friend Carrue is unavilable that day, so Deborah cannot find a reliable person to watch Carlos. Which of the following arrangements will ensure that Carlos works hard without making Deborah any worse off than she is when Carlos shirks? O Allow Carlos to keep 70% of the revenue from the bottles of water he sells instead of 50% O Allow Carlos to keep 73% of the revenue from the bottles of water he sells instead of 50% O Make Carlos promise to work hard
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Deborah sells bottled water from a small stand by the beach. On the last day of summer vacation, many people are on the beach, and Deborah
realizes that she can make a lot more money this day if she hires someone to walk up and down the beach selling water. She finds a college student
named Carlos and makes him the following offer: They'll each sell water all day and split their earnings (revenue minus the cost of water) equally at
the end of the day. Deborah knows that if they both work hard, Carlos will earn $90 on the beach and Deborah will earn $180 at her stand, so they
will each take home half of their total revenue:
= $135. If Carlos shirks, he'll generate only $50 in earnings. Deborah does not know that
Carlos estimates his personal cost (or disutility) of working hard as opposed to shirking at $25.
$90+$180
Once out of Deborah's sight, Carlos faces a dilemma: work hard (put in full effort) or shirk (put in low effort).
In terms of Carlos's total utility, it is better for him to
Taking into account the loss in utility that working hard brings to Carlos, Deborah and Carlos together
instead of shirking.
better off if Carlos works hard
Deborah knows Carlos will shirk if unsupervised. She considers hiring her good friend Carrie to keep an eye on Carlos. The most Deborah should be
willing to pay Carrie to supervise Carlos, assuming supervision is sufficient to encourage Carlos to work hard, is
It turns out that Deborah's friend Carrue is unavilable that day, so Deborah cannot find a reliable person to watch Carlos. Which of the following
arrangements will ensure that Carlos works hard without making Deborah any worse off than she is when Carlos shirks?
O Allow Carlos to keep 70% of the revenue from the bottles of water he sells instead of 50%
Allow Carlos to keep 73% of the revenue from the bottles of water he sells instead of 50%
O Make Carlos promise to work hard
O Pay Carlos $70, regardless of how many bottles of water he sells
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