Suppose that a firm wants to hire an employee to run its office and that the potential employees are risk neutral. A hardworking employee sells $200,000 worth of goods a year, but a lazy one sells only $160,000 worth .A hard worker can earn $80,000 from other firms, so the firm considers using a contingent contract that pays a salesperson a 40% commission on sales. The firm has no costs of production but maintaining this branch office costs the firm $40,000.

To determine if potential employees are hardworking, the firm offers each a choice of contracts:

Contingent contract: no salary and 40% of sales,

Fixed-fee contract: annual salary of $65,000, regardless of sales.

Discuss in detail, how these contracts would help firm to distinguish between hardworking and lazy candidates?