1) Harper runs summer camps that teach kids how to troll people online.

Harper needs to hire 1 counselor for every 2 children.

Harper can locate in small town. In a small town, Harper can hire up to 5 counselors. Small town labor supply isn't very elastic, so Harper has to pay each one 50% of the money the counselor generates to get them to work.

In a big city, Harper can hire counselors at $20. That's the going wage because the labor supply is very elastic. Harper can only supervise up to 10 counselors.

There is a 50% change that all parents are willing to pay $5 per child. There is a 50% chance that all parents are willing to pay $15 per child. Harper does not know which will happen when he chooses a location, but he does know if its $5 or $15 before he has to decide if (and if so how many) counselors to hire.

a) What is Harper's expected profit in the small town

b) What is Harper's expected profit in the big town? Remember he can hire between 0 and 10 counselors.

c) Now suppose there is a 50% chance that all parents are willing to pay $3 per child. There is a 50% chance that all parents are willing to pay $17 per child. The average amount has not changed, but there is more variance. Does Harper's expected profit go up more in the big or small town?