Y5 b) The table below shows that a sales agent can work with either low or high

Y5

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b) The table below shows that a sales agent can work with either low or high amount of effort. Low effort generates $5,000 or $10,000 profit (with probabilities given below), while high effort generates $10,000or $30, 000 profit (with probabilities given below) depending on some random factors ii) Bad luck (p=0.3) Good luck (p=0.7) 10,000 30,000 The cost of exerting low effort is zero while the cost of exerting high effort is 1000. i) iii) c) Low effort (e-0) 5,000 High effort (e-1) 10,000 Suppose the firm pays the worker a fixed wage, how much profit will the firm earn? (2Marks) Suppose that the firm offers the worker a wage of 2000 if it exerts high effort and zero if it exerts low effort, specify the bonus arrangement payment schedule (1 Mark) Specify the profit sharing arrangement (1 Mark) Copayment is used to deal with the problem of adverse selection. True/false, explain (2 Marks) b) The table below shows that a sales agent can work with either low or high amount of effort. Low effort generates $5,000 or $10,000 profit (with probabilities given below), while high effort generates $10,000or $30, 000 profit (with probabilities given below) depending on some random factors ii) Bad luck (p=0.3) Good luck (p=0.7) 10,000 30,000 The cost of exerting low effort is zero while the cost of exerting high effort is 1000. i) iii) c) Low effort (e-0) 5,000 High effort (e-1) 10,000 Suppose the firm pays the worker a fixed wage, how much profit will the firm earn? (2Marks) Suppose that the firm offers the worker a wage of 2000 if it exerts high effort and zero if it exerts low effort, specify the bonus arrangement payment schedule (1 Mark) Specify the profit sharing arrangement (1 Mark) Copayment is used to deal with the problem of adverse selection. True/false, explain (2 Marks)

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i If the firm pays the worker a fixed wage the profit will be calculated based on the expected profi... View the full answer