Managerial Economics & Business Strategy 8th Edition by Michael Baye,Jeff Prince

Exercise 4

Suppose that a CEO's goal is to increase profitability and output from her company by bolstering its sales force and that it is known that profits as a function of output are
(in millions of U.S. dollars). Graph the company's profit function. Compare and contrast output and profits using the following compensation schemes based on the assumption that sales managers view output and profits as "goods": ( a ) the company compensates sales managers solely based on output: ( b ) the company compensates sales managers solely based on profits: ( c ) the company compensates sales managers based on a combination of output and profits.