Essay
Consider the salary of Mary Sue Nelson, a sales agent for Plain Truth Advertising. She has an effort cost of C = e2 and she a reservation wage of $1,500 so that wage package is W = 1,500 + .2 Q where the CEO sets the incentive at .2 and Q = 200 e. Here effort is known only by the employee. There is a random shock to output each period whose mean is zero.
(a) What is the optimal effort for Mary Sue Nelson?
(b) On average, what total wage or salary will she earn each month?
(c) On average, what is the output of sales contracts that she makes?
(d) On average, what kind of profit will the CEO earn off of Nelson's work?
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(a) Mary Sue's expected benefits are 1,5...View Answer
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