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(c) What is the expected value of :rr', prots tommorrow? (Hint: If 7r}1r is the prots the rm will earn if things are good, and
(c) What is the expected value of :rr', prots tommorrow? (Hint: If 7r}1r is the prots the rm will earn if things are good, and 7r; their prot if things are bad, then lE(1r') = pnjq+ (1 p)7rj_5. The rm can choose how much labor to hire in the second period after observing whether it's a good or a bad day.) Eb\") Suppose the rm seeks to maximize the present value of its expected prots: 7r + (d) Set up the new rm's problem. (e) Determine how this change affects the optimal investment rule for the rm. (f) How does investment demand change when p changes? Interpret
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