Question: Consider the following example. A risk-neutral worker can choose Low or High effort. The manager cannot observe the worker's action, but the manager can observe

Consider the following example. A risk-neutral worker can choose Low or High effort. The manager cannot observe the worker's action, but the manager can observe the realized revenue for the firm (either $200 or $1200).

Low Effort

Cost for worker=$0

Probability Low Revenue ($200)=60%

Probability High Revenue($1200)=40%

High Effort

Cost for worker= $50

Probability Low Revenue($200)=40%

Probability High Revenue ($1200)=60%

Instead of offering a flat wage, the manager is trying a new payment scheme. The manager is currently offering to the worker a payment equal to 30% of the revenue of the firm. Given this payment, the firm'sexpected profitwill be:

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