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II -A Managerial problem |l Anika is hired by the owner of a kitchen suppl1.r store to manage the store. Anika and the owner are
II -A Managerial problem |l Anika is hired by the owner of a kitchen suppl1.r store to manage the store. Anika and the owner are bo1h risk-neutral. The probability of weak demand is 0.2, and the probability of strong demand is {1.3. Each cell in the following table shows the store's prot from a specic combinaon of demand and Anika's managerial effort. Anika's cost of effort is not subtracted from these prots. This effort cost is 2 for low effort, 1|]| for medium, and 32 for high. Weak Demand Strong Demand Lowr Effort 40 so Medium Effort ED i High Effort i 14D 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. 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
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