You are considering hiring David to manage your plant in Canada, which because of border closures, you cannot visit to monitor. The profits from the operations depend partially on how hard David works is below. David views spending the day on social media as a zero-cost opportunity. Working all day, however, he thinks costs him $1,000 in utility. What fixed percentage of the profits should you offer David ensure he works hard? Assume David only cares about his expected payment less any personal costs. The table associated with this problem lists the chances of the company earning each level of profits under each of Davids work choices. How does your answer change if David thinks working hard costs him $10,000 in utility? Hint: use expected value to find the break-even point at which David is indifferent between working hard and scrolling social media.

Question 2 Company Profit Probabilities = Scrolling social media Actually working Profit = $50,000 Profit $100,000 70% 30% 10% 90% Question 2 Company Profit Probabilities = Scrolling social media Actually working Profit = $50,000 Profit $100,000 70% 30% 10% 90%