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Unformatted text preview: than the oligopoly prices? If so, explain how this can be profitable for the monopolist. h. In terms of , what are the socially optimal prices? 3. I am going on vacation in the summer and I would like to hire a student to run my cookie baking business. Profits are based on the student’s effort e and equal to 2e + . The student’s cost of effort is e 2 . If I do not hire the student, the student will work at as dorm clerk, exert zero effort, and make $3. Help me determine the salary scheme: s=a+b . a. What is the student’s participation constraint? b. What is the incentive constraint? c. What is my optimization problem? d. What will I pay the student & how much effort will be exerted? e. What will be my profits? Do you think I should skip my vacation to stay home & monitor the student? (My vacation would provide me with $7 net utility.) f. What is the socially efficient level of effort?...
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This note was uploaded on 09/11/2011 for the course ECON 100A taught by Professor Woroch during the Spring '08 term at Berkeley.
- Spring '08