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6. Fixed Compensation vs. Performance Pay Consider two methods to pay a worker for her output. In the first method of employee compensation, the worker is paid according to what she produces (Performance Pay). In the second type of employee compensation, she is paid the same amount no matter what she produces (Fixed Compensation). The employee, who is risk averse, has the utility function, U(w) = vw where w is her compensation. The output produced by the employee can be either high or low with equal probability. If she produces the higher level of output, the revenue (R) to the firm is $400; while if she produces the lower output the firm's revenue is $100. a) What is the expected value of revenue generated by the worker? b) What is the worker's expected utility under a Performance Pay? c) What is the lowest fixed wage that would make the worker accept the fixed compensation instead of a performance-based pay? This is the Certainty Equivalent. d) If the firm is risk neutral, would the firm choose a Performance-based pay or a Fixed wage compensation? e) Can you think of some conditions (other than the ones provided in this question) under which your answer to part d) may be different