II - A Managerial problem II Anika is hired by the owner of a kitchen supply store to manage the store. Anika and the owner are both risk-neutral. The probability of weak demand is 0.2, and the probability of strong demand is 0.8. Each cell in the following table shows the store's profit from a specific combination of demand and Anika's managerial effort. Anika's cost of effort is not subtracted from these profits. This effort cost is 2 for low effort, 10 for medium, and 32 for high. Weak Demand 40 Low Effort Medium Effort High Effort Strong Demand 60 100 140 60 100 Create a spreadsheet containing this information. Add a column showing Anika's cost of effort and also add columns for the expected payoff to Anika and the owner. Weak Demand Strong Demand EV Effort Cost Payoffs 50% Share 30 Salary Low Effort 2 Anika Medium Effort 10 Anika 36 High Effort Owner 26 40 60 100 60 100 140 56 92 132 28 20 130 10 32 Anika 34 64 a. Fill in the expected payoffs to both parties if Anika is compensated with a profit-sharing contract providing her with 50% of the profits (and the owner gets the other 50%). Which effort level does Anika choose b. Now suppose that Anika's contract provides her with a base salary of 30 and 100% of any profits exceeding 100. Which effort level does she choose? c. Which of the two contracts in parts a. and b. would Anika prefer? Which would the owner prefer