Eye-Kya is a new furniture company. It hires one worker to produce...

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Eye-Kya is a new furniture company. It hires one worker to produce chairs. Let Q be the number of chairs produced. The worker chooses how many hours H to work. During each hour worked, the employee is able to produce 6 chairs. For the worker, his personal cost of working is simply H2 Cast of Working = —' 3 The worker receives from Eye-Kya a payment b for each chair produced. The worker's utility equals his income minus his cost of working. The worker chooses the number of hours that maximizes his utility. Eye-Kya faces a downward sloping demand curve. If Eye-Kya sells 0 chairs, then it can charge a price p = 436 _ 2Q(inverse demand). Eye-Kya's profit from the production of chairs equals its revenues minus the labor costs. The payment, b, that maximizes the firm's profits is b = v Under this contract Q = v chairs will be produced and the firm's profits will be v .

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