Andrew Shapiro is a sales agent for ABC Company. He has an effort cost function of C = e²and a reservation wage of $1,500.

His wage package is W = 1,500 + 0.2Q where the CEO sets the incentive at 0.2 and Q = 200e. Q is the output.

• If the CEO increases the incentive from 0.2 to 0.25, what happens to the Andrew's effort? (10 points)
• If the CEO increases the incentive from 0.2 to 0.25, what happens to ABC Company's profit? (10 points)