2. Performance Pay: You're the founder of a start-up and have hired a sales associate. When he puts effort 6 (measured in hours per week), the expected weekly gross prot margin (before paying him) is 136 (where p = $50 per hour). His cost of effort (weekly in dollar terms) is C(e) = %62. (a) Since the two of you work side by side, you can observe his effort level and you incentivize effort with a linear compensation contract a + e with base wage a and commission . What is his equilibrium effort level 6*()? What commission ,8* maximizes the total value of the relationship? What is total value of the relationship under 3"? (b) Since your startup has grown, you no longer do sales yourself and you can no longer directly observe the sales associate's effort 6, but only a noisy measure Z = e + X where the random variable X captures randomness in demand with mean E[X] = 0 and variance Var(X) = V = 9. The sales agent is risk averse