A basketball player is considering signing a one-year contract. If she puts in High effort, there is a 30% chance that the team makes the playoffs. If she puts in Low effort, there is a 10% chance that the team makes the playoffs. The player receives utility from money earned, and incurs a utility cost equivalent to $400000 if they put in High effort. The player has an alternative contract offer that will pay her $1,000,000, and requires Low effort. The team offers the player a base salary, and a bonus if the team makes the playoffs. Assuming that the team is paying the minimum bonus necessary to ensure High effort, what is the minimum base salary necessary to get the player to sign the contract?

A basketball player is considering signing a one-year contract. If she puts in High effort, there is a 30% chance that the team makes the playoffs. If she puts in Low effort, there is a 10% chance that the team makes the playoffs. The player receives utility from money earned, and incurs a utility cost equivalent to $400000 if they put in High effort. The player has an alternative contract offer that will pay her $1,000,000, and requires Low effort. The team offers the player a base salary, and a bonus if the team makes the playoffs. Assuming that the team is paying the minimum bonus necessary to ensure High effort, what is the minimum base salary necessary to get the player to sign the contract?

SWFT Comprehensive Volume 2019

42nd Edition

ISBN:9780357233306

Author:Maloney

Publisher:Maloney

Chapter9: Deductions: Employee And Self-employed-related Expenses

Section: Chapter Questions

Problem 42P

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