5* Enter a number without quotes. Round to the first decimal if necessary. Do not use fractions. For decimal numbers between 0 and 1, use a 0 in front, i.e. write "0.5" instead of ".5". Recall the setting from class. The firm Amazon wants to hireLisbeth, a skilled programmer, by offering her a contract. Acontract specifies a wage w and a minimum level of effort e thatthe worker must provide. Lisbeth does not have to accept thecontract. If she does, she can exert high effort e = eH or loweffort e = e. Amazon can observe the level of effort and onlypays Lisbeth if she provides the level of effort required in thecontract.Amazon's revenues are 5 if Lisbeth exerts effort eH, 1 if sheexerts effort eL, and O if she refuses the offer.Lisbeth utility is wage - cost of effort: U = w -C(e) where the costof effort is C(eH) = 1 and C(eL) = 0.5.Contrary to the class setting, suppose that if Lisbeth refusesAmazon's contract, she can be hired by Facebook with a contract(2, el), and Amazon knows this when making their offer.First, what is the utility that Lisbeth would derive Facebook'scontract?|(See note * at the bottom.)Then, complete below what contract Amazon will offer Lisbeth:W =(See note * at the bottom.)Required effort level e =(Enter: H or L)

U=W-C(e)C(eH)=1C(eL)=0.5Amazone's revenue with high effort=5Amazone's revenue with low…

Recall the setting from class. The firm Amazon wants to hire Lisbeth, a skilled programmer, by offering her a contract. A contract specifies a wage w and a minimum level of effort e that the worker must provide. Lisbeth does not have to accept the contract. If she does, she can exert high effort e = e or low

Recall the setting from class. The firm Amazon wants to hire Lisbeth, a skilled programmer, by offering her a contract. A contract specifies a wage w and a minimum level of effort e that the worker must provide. Lisbeth does not have to accept the contract. If she does, she can exert high effort e = e or low

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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