Suppose an entrepreneur owns a firm with a production technology that generates the following revenue: R(e)=e^2 + 800e where revenue depends on his effort level e. The monetary cost of effort is given by C(e)=2e^2. The entrepreneuer is risk neutral and maximixes his expected utility. (a) What effort level does the entrepreneur choose? What is the value (gross profit) of the firm?

(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?

(c) Suppose the entrepreneur sells % equity. What effort level does the entrepreneur choose and is it efficient? If =0.70 (i.e. 70%), what is the value of the firm?