1. (5 points) Recently, the owner of a Trader Joe's franchise decided to change how she compensated her top manager. Last year, she paid him a fixed salary of $65,000, and her store made $120,000 in profits (not counting payment to her top manager). She suspected the store could do much better and feared the fixed salary was causing her top manager to shirk on the job. Therefore, this year she decided to offer him a fixed salary of $30,000 plus 15 percent of the store's profits. Since the change, the store is performing much better, and she forecasts profits this year to be $280,000 (again, not counting the payment to her top manager). Assuming the change in compensation is the reason for the increased profits, and that the forecast is accurate, (2) Which compensation method (the old one or the new one) will the manager prefer? Please explain why. (b) Which compensation method (the old one or the new one) would the owner of the franchise prefer? Please explain why. (c) If there was another compensation pack offered where the worker would get a flat salary of $30,000 and 10 percent of the profits (expected profits are still $280,000), would the worker prefer this offer or would the worker prefer getting a flat salary of $65,0007 Please explain why. 2. (5 points) Professional athletes in MLB and NBA often have fully guaranteed contracts, which means that they will be paid the full value of their contract even if they are injured and cannot play in all the games, or even if their performance is not as good as was expected. What incentive do such players have to perform at the highest level? Please give an explanation. 3. (5 points) Is there a principal agent problem when school teachers are hired by a local school (will the goals of the school be the same as the goals of the teachers)? Please explain