You inherited your uncle's bakery in a rem family, but you prefer to keep your job and hired a local manager. The profits of the bakery depend on the economy and on the manager's effort, according to the following table: Good economy Bad economy No effort $22,000 $7,000 High effort $32,000 $17,000 The good and bad economies have equal probabilities. When the manager makes no effort, he is running his own side business that is generating $1,500. Which of the following incentives avoids the principal-agent problem? O A. 7% of the profit O B. A fixed salary of $3,000 O C. None of the listed options. O D. 14% of the profit

You inherited your uncle's bakery in a rem family, but you prefer to keep your job and hired a local manager. The profits of the bakery depend on the economy and on the manager's effort, according to the following table: Good economy Bad economy No effort $22,000 $7,000 High effort $32,000 $17,000 The good and bad economies have equal probabilities. When the manager makes no effort, he is running his own side business that is generating $1,500. Which of the following incentives avoids the principal-agent problem? O A. 7% of the profit O B. A fixed salary of $3,000 O C. None of the listed options. O D. 14% of the profit

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.8P

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