4 Suppose the owner of a small business is considering hiring a manager and has decided to opt for a performance-based scheme for the manager’s pay. Suppose a manager’s utility function is given by U(m, s) = m +

40s1/2, where m is the manager’s income and s the number of hours of shirking the manager takes. In the absence of shirking, suppose that the small business will achieve revenue (net of all costs except the manager’s pay) of $1,200 and that, for every hour of shirking, revenue is reduced by

$25.