Principal-agent relationships are typically assumed to be motivated by efficiency gains from comparative advantage. Consider a situation where the Principal hires a risk-neutral Agent to work for them. The Agent can provide effort in integer amounts ranging from 0 through 10. Revenues as a function of effort are $90 per effort level, and the agent incurs a cost of $50 per effort level. The Agent's observation utility level measured in dollars is $150. As the principal cannot monitor the Agent's effort level, the Principal cannot for instance offer a contract that states "I will pay you a certain amount if your work effort is equal to level 5".

The table below is the results which include two empty columns which you will find helpful in computing your answers.

Revenue as a Cost as a Effort function of function of Level Effort Effort 0 0 O 90 50 180 100 3 270 150 4 360 200 5 450 250 6 540 300 7 630 350 oo 720 400 9 810 450 10 900 500