1. Consider a fi rm. With probability , it will generate high revenue , and with the remaining probability, it will generate low revenue . The only cost is labor, and it only hires one worker. Suppose that the labor'sutility is where is the wage. a) Consider a profi t-sharing contract between the fi rm and thelabor. The wage rate is the of the revenue. What is the expectedvalue of this contract? What is the expected utility of this contract? b) An alternative contract is a fi xed wage contract. The fi rm pays afi xed wage rate of regardless of the revenue. What is the fi xed wage that makes the labor indiff erent between profi t-sharing and fi xedcontracts? c) Suppose the fi rm is risk neutral, i.e., only cares about expectedprofi t. What is the optimal contract to off er? What is the economicintuition behind this result? d) We assume that the fi rm is risk neutral. Why do you think this isa reasonable assumption