Scenario 17.5

Consider the following information:

Income to the firm from workers who sell door-to-door

Bad Luck

Good Luck

Low Effort (e = 0)

$5,000

$7,000

High Effort (e = 1)

$7,000

$13,000

Cost of effort: c = $2500e

Probabilities: Bad luck = .75; Good luck = .25

Refer to Scenario 17.5. If a fixed wage of $3000 is given the individual worker, the result will be:

a.) low effort 75% of the time.

b.) low effort 25% of the time.

c.) low effort.

d.) high or low effort depending on whether the worker thinks the $3000 is an acceptable wage.

e.) high effort.