{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Homework4

Homework4 - W3211 Spring 2009 Professor Vogel Homework#3...

This preview shows pages 1–2. Sign up to view the full content.

W3211 Spring 2009 Professor Vogel Homework #3: Due Tuesday 03/31/09 ° Please write your name on the top of every page of your homework (in case they get separated) and please staple all pages together . ° Where appropriate, you must show all work. If you just give an answer without work, you don°t receive credit (on a mathematical question, of course). For a given income, I , and a given level of e/ort e ± 0 , Sue°s utility is u ( I; e ) = I ² 1 2 e 2 . Suppose the ±rm°s revenue as a function of Sue°s e/ort is R ( e ) = 10 e . 1. (20 Points) Suppose Sue earns a wage w ± 0 no matter how much e/ort she exerts. (a) (10 Points) Solve for the level of e/ort she will exert as a function of the wage. (b) (10 Points) Given your answer to part ( a ) solve for the wage w ± 0 that maxi- mizes the ±rm°s pro±t, which is equal to R ( e ) ² w in this case. [i.e. Suppose the ±rm knows how much e/ort Sue will exert given its choice of wage. Then solve for the wage the ±rm would choose that maximizes its pro±t] 2. (20 Points) Now suppose that the ±rm can observe Sue°s e/ort and writes a contract that stipulates that Sue°s base salary is zero and that she receives a bonus b ± 0 for every unit of e/ort that she exerts.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 2

Homework4 - W3211 Spring 2009 Professor Vogel Homework#3...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online