Maths question: You are planning to establish a plant and hire workers to produce clothes. Suppose labour is the only input and workers can choose to exert no effort or high effort. Those efforts are not observed by the plant. The cost of high effort is 500 and there is no cost if the labour exerts no effort. There is some uncertainty in the economy. There is an 60% chance that the economy is good and a 40% chance that the economy is bad. The plant's revenue matrix is as follows: Labour State of nature Bad Good No effort 1000 3000 High effort 3000 5000 a) The plant decides to sign an incentive contract with the labour. The plant sets wage (W) to be 500 if its revenue (R) is 1000. W=0.6(R-1000) if R>1000. Which effort level will be