15. A worker with access to a competitive wage W-500, can choose between a high effort level e=1or a low effort level e=0 with respective costs c(e-1)=50, c(e=0)=0 and operates a stochastic technology yielding a high level product Q (as opposed to a low level product q) with probability P=1/3 if e=1, or with probability p=1/4 if e-0 (under circumstances making it socially efficient a high effort level). Then, the efficiency wage of optimal contract of a risk-neutral principal is: a) 100 b) 500 c) 1000 d) 1100. e) none of the previous statements a-d is correct.
15. A worker with access to a competitive wage W-500, can choose between a high effort level e=1or a low effort level e=0 with respective costs c(e-1)=50, c(e=0)=0 and operates a stochastic technology yielding a high level product Q (as opposed to a low level product q) with probability P=1/3 if e=1, or with probability p=1/4 if e-0 (under circumstances making it socially efficient a high effort level). Then, the efficiency wage of optimal contract of a risk-neutral principal is: a) 100 b) 500 c) 1000 d) 1100. e) none of the previous statements a-d is correct.
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter17: Making Decisions With Uncertainty
Section: Chapter Questions
Problem 8MC
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![Could you please explain the solution?
15. A worker with access to a competitive wage W=500, can choose between a high effort level
e=1or a low effort level e=0 with respective costs c(e=1)=50, c(e=0)%3D0 and operates a stochastic
technology yielding a high level product Q (as opposed to a low level product a) with probability
P=1/3 if e=1, or with probability p=1/4 if e=0 (under
circumstances making it socially efficient a high effort level). Then, the efficiency wage of optimal
contract of a risk-neutral principal is:
a) 100
b) 500
c) 1000
d) 1100.
e) none of the previous statements a-d is correct.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F03c29d4f-f722-4ee3-8385-91a00cadb464%2F2bbf7751-d27a-41fb-b4db-3b9293854252%2F1pdl44_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Could you please explain the solution?
15. A worker with access to a competitive wage W=500, can choose between a high effort level
e=1or a low effort level e=0 with respective costs c(e=1)=50, c(e=0)%3D0 and operates a stochastic
technology yielding a high level product Q (as opposed to a low level product a) with probability
P=1/3 if e=1, or with probability p=1/4 if e=0 (under
circumstances making it socially efficient a high effort level). Then, the efficiency wage of optimal
contract of a risk-neutral principal is:
a) 100
b) 500
c) 1000
d) 1100.
e) none of the previous statements a-d is correct.
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