Suppose that the expected value of daily profits for an ice cream shop, before paying the manager,

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Suppose that the expected valueof daily profits for an ice cream shop, before paying the manager, Amy, isEÏ€ = 500 + 8e,whereeis Amy€™s daily overtime hours. Amy is risk-neutral but incurs a costC(e) = e2from working overtime. Thus, total expected surplus isES = EÏ€ ˆ’ C(e).What level of effort maximizes total surplus?
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Managerial Economics and Strategy

ISBN: 978-0134167879

2nd edition

Authors: Jeffrey M. Perloff, James A. Brander

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