Incentives Effort You are a division manager for the logging firm of Karrde Incorporated. You are planning to offer a contract to Jade Enterprises for constructing logging roads in the Myrkr Forest. It is imperative that the roads are wide enough; if the roads are wide enough, Karrde's profit will be 120, while it will only be 60 if the roads are too narrow. (Karrde's profits are 0 if it does not hire Jade.) You have the opportunity to make a take-it-or-leave-it offer to Jade, but you can not set the payment below 0 for any outcome. Whether or not the roads are wide enough depends crucially on Jade's effort: If Jade exerts low effort, then the probability of success is only one third; if Jade exerts medium effort, the probability of success is two thirds; and if Jade exerts high effort, success is guaranteed. Jade Enterprises is a small concern. If Jade does not take the job, its utility is 2. If Jade takes the job, and exerts low effort, its utility is ?w, where w ? 0 is the payment to Jade. If Jade takes the job and exerts medium effort, its utility is given by ?w ? 1. Finally, if Jade takes the job and exerts high effort its utility is given by ?w ? 3.

a) Suppose that you can observe the effort that Jade exerts, and so can write contract where payment is contingent on effort. If you wish to incentives low effort, what is the most profitable contract you can offer? If you wish to incentives medium effort, what is the most profitable contract you can offer? If you wish to incentives high effort, what is the most profitable contract you can offer? Given your answers to the previous questions, which is the most profitable contract for Karrde to offer Jade?

b) Now suppose (for the rest of this problem) you can not observe effort. If you wish to write the most profitable contract that incentives low effort, what contract will you write? Does it differ from the contract for low effort in part a)?

c) If you wish to write the most profitable contract that incentives medium effort, what contract will you write? How does it differ from the contract in part a) for medium effort?

d) If you wish to write the most profitable contract that incentives high effort, what contract will you write? How does it differ from the contract in part a) for high effort?

e) Consider your answers to the previous parts of this question. What contract will you offer to Jade?that is, what contract maximizes your profits? Does this contract incentives the same level of effort as the contract you offered in part a)? Why or why not?

Use the following to answer questions 8-9: Table: Balance Sheet Assets Liabilities Reserves $20,000 Deposits Loans 8. (Table: Balance Sheet) Refer to the information in the balance sheet. If the reserve ratio is 25%, deposits are: A) $5,000. B) $15,000. C) $60,000. D) $80,000. 9. (Table: Balance Sheet) Refer to the information in the balance sheet. If the reserve ratio is 25%, loans are: A) $5,000. $15,000. C) $60,000. D) $80,000.1. Common-sized balance sheets A) Show data For companies in the same industry. 8) Show data for companies with approximately the same amount of assets. C) Show each balance sheet account as a percentage of total sales. D) Show each balance sheet account as a percentage of total assets. QUESTION 37 Depreciation on printing machines 1. Cost of goods manufactured schedule. 2. Income statement. O 3. Balance sheet. QUESTION 38 Finished goods inventory, 12/31/2008 1. Cost of goods manufactured schedule O 2. Income statement. O 3. Balance sheet. QUESTION 39 Raw materials inventory, 1/1/2008 1. Cost of goods manufactured schedule 2. Income statement. 3. Balance sheet QUESTION 40 Cost of goods manufactured 1. Cost of goods manufactured schedule. 2. Income statement. O 3. Balance sheet. QUESTION 41 Work in process, 1/1/2008 1. Cost of goods manufactured schedule 2. Income statement. 3. Balance sheet Click Save and Submit to save and submit. Click Save All AnsQuestion 35 (1 point) What do we know about regulation of a firm in a monopolistically competitive market? It usually implies a very small administrative burden. It will lower the firm's costs. It is commonly used to enhance market efficiency. It is unlikely to improve market efficiency. Question 36 (1 point) What type of externalities accompany the entry of new firms into a monopolistically competitive market? the product-variety externality as a positive externality and the business-stealing externality as a negative externality the product-variety externality as a negative externality and the business-stealing externality as a positive externality the business-variety externality as a positive externality and the product-stealing externality as a negative externality O the business-variety externality as a negative externality and the product-stealing externality as a positive externalityD Question 8 1 pts AD AS AS 120 100 Price level 80 (CPD) 60 40 AD 20 0 1 2 3 4 5 6 Real GDP (billions of dollars per year) A shift in the aggregate supply curve in the graph above from AS1 to AS2 would be caused by a(n): O increase in consumer spending. O increase in input prices. O decrease in input prices. O decrease in real output