(This question will not be graded) Grace just appointed Brianna as the CEO of her company, Say Grace. Brianna can spend her time slacking off ( ), which gives her no disutility, or working hard ( ), which gives her a disutility of . Brianna's utility is given by , where is a disutility term that depends on her choice between slacking off and working hard. Assume that Brianna has a reservation utility of 0.
Moreover, Grace only cares about the profits of Say Grace, which can be 740 in case of a good quarter or 500 in case of a bad quarter. The probability of each outcome depends on Brianna's choice of how to spend her time and is given by:

Where .
Select the correct option(s):

Question

(This question will not be graded) Grace just appointed Brianna as the CEO of her company, Say Grace. Brianna can spend her time slacking off (    ), which gives her no disutility, or working hard (    ), which gives her a disutility of   . Brianna's utility is given by    , where    is a disutility term that depends on her choice between slacking off and working hard. Assume that Brianna has a reservation utility of 0. 
 Moreover, Grace only cares about the profits of Say Grace, which can be 740 in case of a good quarter or 500 in case of a bad quarter. The probability of each outcome depends on Brianna's choice of how to spend her time and is given by:

Where   .  
 Select the correct option(s):

Answer

If effort is observable and   , Grace will want to induce Brianna to work hard for all   .

Answer

Let    and   . Then, in case effort is unobservable, the highest expected profit Grace can obtain is 632

Answer

If effort is unobservable, there exist some values of    for which, in order to induce Brianna to work hard while minimizing costs, the wage offered after a bad quarter must be greater than the wage offered after a good quarter.

Answer

Let   . Then, if effort is unobservable and   , Grace will offer a wage scheme that induces Brianna to work hard.

	Slacking off (e=0)	Working Hard (e=1)
Good Quarter	0.5
Bad Quarter	0.5

Crowdly

(This question will not be graded) Grace just appointed Brianna as the CEO of h...

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