3)DannyandReubenare old friends. Danny tells Reuben about ajobwhere Reuben can quadruple his investment. All Reuben needs to do is invest $2,000,000. Danny will use this investment to hire a team to complete thejob.

Thejobrequireseightspecialists; Rusty, Linus, Basher, Frank, Turk, Livingston, Saul, and Yen. Each specialist values their time by $10,000 per hour. For the job to be succesful,eachspecialist has to contribute aminimumof 20 hours of work. If succesful, the job generates a revenue of $16 million. Otherwise, the job fails and the investment is lost.

As the manager, Danny observes the output (whether the job is succesful or not) as well as each specialist's contribution.

a)Whatistherevenueifeachspecialistcontributes21hoursofworkforthejob?

(0.5 marks)

b)Whatistherevenueifeachspecialistcontributes20hoursofworkforthejob,except for Saul who puts in zero hours?(0.5 marks)

c)Suppose each specialist only cares about their private benefits.

i.How much time would you expect each specialist to contribute if specialists'

compensation does not depend on the outcome of the job or on their hours of

contribution?(1 mark)

ii.How much time would you expect each specialist to contribute if each specialist

receives $500,000, provided that the job is succesful?(1 mark)

iii.How much time would you expect a specialist to contribute if the specialist is

paid $500,000 only if the specialist contributes at least 20 hours?(1 mark)

d)Suppose,ReubenbelievesthatDannywillmotivatetheteamandthejobwillbe succesful. However, since the job is not entirely legitimate any contract between Danny and Reuben would be void. Therefore, Reuben needs to trust that Danny will pay him the promised $8,000,000 if the job is a success. Should Reuben invest in Danny'sjob?(1 mark)