Question 2 [8 points] Suppose an entrepreneur owns a firm with a production technology that generates the following revenue: R(e)=e? +800e where revenue depends on his effort level e. The monetary cost of effort is given by C(e) = 2e. The entrepreneuer is risk neutral and maximixes his expected utility. (a) What is the maximal value (profit) of the firm? [2p] (b) Suppose the entrepreneur sells 100% equity. After selling the firm, what effort level does the entrepreneur choose? What is the value of the firm? [2p] (c) Suppose the entrepreneur sells 3% equity. What effort level does the entrepreneur choose? Is it efficient? [4p) Question 2 [8 points] Suppose an entrepreneur owns a firm with a production technology that generates the following revenue: R(e)=e? +800e where revenue depends on his effort level e. The monetary cost of effort is given by C(e) = 2e. The entrepreneuer is risk neutral and maximixes his expected utility. (a) What is the maximal value (profit) of the firm? [2p] (b) Suppose the entrepreneur sells 100% equity. After selling the firm, what effort level does the entrepreneur choose? What is the value of the firm? [2p] (c) Suppose the entrepreneur sells 3% equity. What effort level does the entrepreneur choose? Is it efficient? [4p)