1. (10 points) In the tournament problem covered in the lecture sides, the firm sets the tournament prize S equal to R, the range of luck-based outcomes faced by Worker 2 relative to Worker 1. Explain why does S increases with R.

2. (10 points) In piece-rate compensation schemes, whether they be based on individual output or team output, worker effort E depends on the piece rate b but not on the base wage a. Explain why this is the case.