QUESTION THREE This question works off the set up in the example on page 522 of the text. Two workers, Conrad and Dina produce 5*E units of output each working individually where E is the amount of effort that they provide. Dina's output working individually is 5*Em and Conrad's output working individually is 5*Ec.. The subscript "I" denotes effort working individually and the subscript "T" denotes effort working on a team. If they work as a team and coordinate their effort, their joint output as team is Team Output = 2*(EDT + ECT)2. Don't let the math of the team output equation freak you out. It is just a function that captures the salient aspect of a synergistic team: the impact on team output of Conrad putting forth additional effort depends on how much effort Dina provides which is not the case when they work individually. The team output is greater than the sum of the individual outputs so long as Em + Ecr > 10. The amount of effort Dina and Conrad provide depends on their incentives. With a bonus contract that is percentage of output (x%), the marginal return to output from a unit of additional effort working individually is 5 for all levels of ED. and Ec. and the marginal bonus to the individuals from an additional unit of effort is x%*5. With team production, the two workers split the credit for the output, so the marginal return to an additional unit of effort is 2*(EDT + Em) and the marginal bonus for an additional unit of effort is Y%*2*(EDT + ECT).1 Mar- inal Out Per Unit of Effort Mar- inal Bonus Per Unit of Effort Individuals 2*(Em + En}*Y% 1 The team output is 2*(Em + Ecrlz. The individual's share for performance purposes is half of the total: (Em + EU)? The marginal return to a unit of effort is the derivative of individual's share with respect to effort