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Paul hires Amy to manage his bakery shop. The following table gives the shop's prots (without subtracting payments to Amy) under 3 different levels of
Paul hires Amy to manage his bakery shop. The following table gives the shop's prots (without subtracting payments to Amy) under 3 different levels of Amy's effort and two different states of the world (good and bad weather). There is an 80% probability that the weather will be good. Bad weather (20%) Good weather (80%) Low Effort 200 400 Medium Effort 400 800 High Effort 800 1000 The cost of low effort is $10, medium effort $20, and high effort $40. Paul offers a xed salary of $100 and bonus B if profit is higher than $800 and nothing otherwise. What is the minimum value of B such that Amy would choose high effort? (|.e., For what X would Amy choose a high effort as long as B > X?)
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