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Question 4 (16 marks} The owner of a rm hires a manager. The manager chooses effort e 2 ft. The profit of the firm is 11' = e + e, where .9 follows a normal distribution with mean t} and variance 53. The manager's cost of effort is enje] = 2. The owner pays the manager a linear wage is = o + fur. The manager is risk averse with CARA utility;r over wage and the expected utility of the manager is 02! ) = E(w] Vaw) 2. The manager's reservation utility is I}. The owner is risk neutral and maximizes the expected net profit, which is the expected profit less the expected wage. a} {4 marks} What is the fast-best effort level? What is the first-best wage scheme? 1:} {T marks] Suppose the owner does not observe effort. Given the linear wage, die manager's expected utility is Em J = o + be baa: e1. Write down the owner's prot maximization problem. Suppose or2 = 1. What is the second-best effort level? What is the seoond-best wage scheme