For a new client, KM Services estimated costs of $25,000 for the 80% of projects that are "easy" and $50,000 for the 20% that are "hard." If the client agrees to pay the average cost per project, but then engages in moral hazard by outsourcing to KM only the projects for which it is not "overpaying," KM would:

lose $20,000 per project

break even

lose $5,000 per project

make $5,000 per project

PLEASE SHOW ME HOW TO WORK OUT THE PROBLEM? Thanks so much!!!!