Question
Anna Gomez is an employee at Cool Products, Inc. She has an effort cost function of C = 2e 2 and a reservation wage of
Anna Gomez is an employee at Cool Products, Inc. She has an effort cost function of C = 2e2and a reservation wage of $4,000.
Her compensation package is W = 4,000 + 0.3Q where the incentive coefficient = 0.3 and Q = 400e. Q is the output.
- If the CEO increases the incentive from 0.3 to 0.4, what happens to the Anna's effort? (10 points)
- If the CEO increases the incentive from 0.3 to 0.4, what happens to Cool Products, Inc.'s profit? (10 points)
Be sure to explain your calculations
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Macroeconomics Principles Applications And Tools
Authors: Arthur O Sullivan, Steven M. Sheffrin, Stephen J. Perez
7th Edition
978-0134089034, 9780134062754, 134089030, 134062752, 978-0132555234
