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cilla hires Armie to manage her store. Amie's effort is given in the left column of the table Each cell shows the net proft to the Priscila (ignoring Arnie's cost of rt) Low Demand Low Effort Medium Effort High Efort High Demand 200 400 500 100 200 400 ie's personal cost of effort is 0 at low effort, 50 at medium effort, and 150 at high effort It is equally ikely that demand will be low or high Amie and Priscila are cneutral They consider two possiblo contracts (1) fixed fee Amie recerves a foxed wage of 50, and (2) profit sharing Amie receives 50% of the firm's net income tno wage nat happens if they use the fxed fee contract? th the fxed fee contract, Arnie will put forth effort mat happens if they use the profit-sharing contract? th the profit-sharing contract, Arnie will put forth Y effort hich contract does each prefer? ne and Priscila

cilla hires Armie to manage her store. Amie's effort is given in the left column of the table Each cell shows the net proft to the Priscila (ignoring Arnie's cost of rt) Low Demand Low Effort Medium Effort High Efort High Demand 200 400 500 100 200 400 ie's personal cost of effort is 0 at low effort, 50 at medium effort, and 150 at high effort It is equally ikely that demand will be low or high Amie and Priscila are cneutral They consider two possiblo contracts (1) fixed fee Amie recerves a foxed wage of 50, and (2) profit sharing Amie receives 50% of the firm's net income tno wage nat happens if they use the fxed fee contract? th the fxed fee contract, Arnie will put forth effort mat happens if they use the profit-sharing contract? th the profit-sharing contract, Arnie will put forth Y effort hich contract does each prefer? ne and Priscila

Linear Algebra: A Modern Introduction
Linear Algebra: A Modern Introduction
4th Edition
ISBN:9781285463247
Author:David Poole
Publisher:David Poole
Chapter7: Distance And Approximation
Section7.3: Least Squares Approximation
Problem 32EQ
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Priscilla hires Arnie to manage her store. Amie's effort is given in tho lett column of tho table Each cel shows the net profit to the Priscilla (ignoring Arnie's cost of effort) Low Demand Low Effort Modium Effort High Effort 100 200 400 High Demand 200 400 500 Arnie's personal cost of offort is 0 at low effort, 50 at medium effort, and 150 at high etfort. It is equally likely that demand will be low or high Amie and Priscila are risk-noutral They considor two possiblo contracts (1) fixod fee Armio recoives a foxed wage of 50, and (2) protit sharing Arnie recoives 50% of the firm's net income but no wage What happens if they use the fixod foo contract? With the fixed fee contract, Arnie will put forth What happens if they use the profit-sharing contract? v offort With the profit-sharing contract, Arnie will put forth effort Which contract does each prefer? Arnie and Priscilla
Transcribed Image Text:Priscilla hires Arnie to manage her store. Amie's effort is given in tho lett column of tho table Each cel shows the net profit to the Priscilla (ignoring Arnie's cost of effort) Low Demand Low Effort Modium Effort High Effort 100 200 400 High Demand 200 400 500 Arnie's personal cost of offort is 0 at low effort, 50 at medium effort, and 150 at high etfort. It is equally likely that demand will be low or high Amie and Priscila are risk-noutral They considor two possiblo contracts (1) fixod fee Armio recoives a foxed wage of 50, and (2) protit sharing Arnie recoives 50% of the firm's net income but no wage What happens if they use the fixod foo contract? With the fixed fee contract, Arnie will put forth What happens if they use the profit-sharing contract? v offort With the profit-sharing contract, Arnie will put forth effort Which contract does each prefer? Arnie and Priscilla
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