Draw the following incentive contracts on the same graph, with gross profit (revenue minus costs for all inputs, not including payments to the manager) for the firm on the horizontal axis and manager pay on the vertical axis as in Figure Draw a second graph with the marginal pay implied by each contract.

a. The manager is paid $50,000 plus a 40% share of gross profit.
b. The manager buys out the firm (so the manager gets all the gross profits) for $100,000.
c. The manager is paid a constant $75,000.
d. The manager is paid $60,000 plus a bonus if the firm's gross profit is more than$90,000.

Transcribed Image Text:

Manager pay S3 (high power, 45-degree line) S2 (moderate power) S1 (constant wage) Gross profit