1. Suppose an agents marginal cost function(V(E)) is given by V(E)=E/2, her production function is given by Q=6E and her contract is given by Y=10 + 0.25Q. (Thus, d=6 and b=0.25 in our notation) a) What is the marginal benefit?

b) At what level of effort does the agent maximize their utility?

c) What is total income?

d) Show your results graphically.

e) If the commission rate (b) is increased to b=0.5, thus Y=10 + 0.5Q, does the agents effort level where utility is maximized change? Explain

1. Suppose an agents marginal cost function(V(E)) is given by V(E)=E/2, her production function is given by Q=6E and her contract is given by Y=10 + 0.25Q. (Thus, d=6 and b=0.25 in our notation) a) What is the marginal benefit?

b) At what level of effort does the agent maximize their utility?

c) What is total income?

d) Show your results graphically.

e) If the commission rate (b) is increased to b=0.5, thus Y=10 + 0.5Q, does the agents effort level where utility is maximized change? Explain