Consider the case in which Ineffi can observe Dr Knowsbetter's effort. Writedown the participation constraints for the firm and the worker, conditionalon high and low effort, respectively. What level of effort maximizes totalsurplus? (Hint: In your calculations, express the cost of low effort as eį.Replace e = 5, 000 only at the end.) Optimal compensation. Ineffi Inc. is considering hiring Dr Jameela Knows-better to streamline its operations in Northern Montana. If successful, the projectwill yield a payoff of $100,000. If unsuccessful, it will bring a loss of $20,000.The outcome of the project crucially depends on Dr Knowsbetter's effort, whichcan take only two values: High or low. When effort is high, the project is suc-cessful with probability phwith probability piat $15, 000. Exerting low effort costs her $10,000 less than that. In case it doesnot hire Dr Knowsbetter, Ineffi will have to turn to the next best candidate forthe task, that is estimated to bring a net value of $20,000 to the company. If DrKnowsbetter does not get this gig, she will go on a vacation in a Maldives' resortwith her girlfriends. She values the vacation at $20, 000. Assume throughout thatwage compensation must be non-negative.0.9. When effort is low, the project is successful= 0.7. Dr Knowsbetter values the cost of exerting high effort

Consider the case in which Ineffi can observe Dr Knowsbetter's effort. Write down the participation constraints for the firm and the worker, conditional on high and low effort, respectively. What level of effort maximizes total surplus? (Hint: In your calculations, express the cost of low effort as ej. Replace e = 5, 000 only at the end.)

Consider the case in which Ineffi can observe Dr Knowsbetter's effort. Write down the participation constraints for the firm and the worker, conditional on high and low effort, respectively. What level of effort maximizes total surplus? (Hint: In your calculations, express the cost of low effort as ej. Replace e = 5, 000 only at the end.)

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter17: Making Decisions With Uncertainty

Section: Chapter Questions

Problem 17.6IP

See similar textbooks

Similar questions

Identify True or False. Statement T or F 1. Ifyou decrease the holding cost by (1/100)h, your EoQ will decrease by (1/10)h. 2. After MRP II is called Manufacturing Resource Planning and not Material Requirements Planning. 3. If the lead time is larger than the cycle time, your order arrives at your facility at least one cycle later. 4. You reduce your backorder cost if you continue to increase your service level. 5. Newsboy model deals with one period only. 6. (Q. r) models do not deal with stochastic demand. 7. Uniform distribution may be used in EOQ. 8. Estimations with larger MSE values are more accurate than lower ones. 9. Zero inventory plan assumes chase strategy in aggregate planning. 10. EOQ models possess very robust cost functions. 11. If we reduce inventory, we have larger opportunity costs. 12. If you have uniform distribution for demand, you cannot calculate order quantity in Newsboy model. 13. You cannot estimate for period 8 if you are using MA(7). 14. You can estimate…
Reactors `R’ Us operates a nuclear power plant in Potsdam.In the event of reactor failure, there would be major damages to the North Country. The company can reduce the probability of failure through proper maintenance of the facility. The marginal cost of maintenance is increasing in the amount of maintenance done (and thus decreasing in the probability of an accident). We can write this marginal cost curve as MAC=2-10p (where 0<p<1, and represents the probability of a failure over a 50 year period). The marginal expected damages are an increasing function of the probability of an accident so that MD=2.2+10p. Provide a graph or graphs to illustrate your analysis/answers to the following questions. A. What is the efficient probability of reactor failure? B. If “Reactors ‘R’ Us” thinks that, in the event of reactor failure, they will NOT be found liable for damages, what probability of failure will they choose? C. If “Reactors ‘R’ Us” thinks that, in the…
Discuss Deterministic Safety Factor-Based Methods
Ain a community of 10000 people, each is willing to pay Ksh 10 for each well dug. The cost of digging the wall is is given by C= Q2+20Q. Calculate the pareto efficiecy number of wells to be dug. If the government want to dug the well at a minimal cost, how many walls will it dig and how much will it spen if the projet is given to a private, profit making organization, how many well would the firm dig?
Discuss how one is able to describe the riskiness of the decision-taker’s situation in ways which are intuitively appealing and analytically tractable.
A manager is deciding whether to build a small or a large facility. Much depends on the future demand that thefacility must serve, and demand may be small or large. The manager knows with certainty the payoffs that willresult under each alternative, shown in the following payoff table. The payoffs (in $000) are the present values offuture revenues minus costs for each alternative in each event.What is the best choice if future demand will be low?
Dataware is trying to determine whether to give a $10 rebate, cut the price $6, or have no price change on a software product. Currently, 40,000 units of the product are sold each week for $45 apiece. The variable cost ofthe product is $5. The most likely case appears to bethat a $10 rebate will increase sales 30%, and half of all people will claim the rebate. For the price cut, the most likely case is that sales will increase 20%.a. Given all other assumptions, what increase in sales from the rebate would make the rebate and price cut equally desirable?b. Dataware does not really know the increase in sales that will result from a rebate or price cut. However, the company is sure that the rebate will increase sales by between 15% and 40% and that the pricecut will increase sales by between 10% and 30%.Perform a sensitivity analysis that could be used to help determine Dataware’s best decision.
We consider the following decision problem, with 4 decisions di,i∈{1,…,4}, and four possible outcomes ωi,i∈{1,…,4}, with the following table of profits: ω1 ω2 ω3 ω4 d1 30 30 0 30 d2 20 20 20 20 d3 0 50 10 40 d4 15 30 10 25 Which decision should be chosen for rewards depending on four different possible outcomes, according to the maximin rule, maximax rule, and optimism-pessimism rule with α<1/3?
Quick answer please If you are currently a worker earning $60,000 per year but are considering becoming an entrepreneur. You will not switch unless you earn an accounting profit that is on average at least as great as your current Salary. You look into opening a small grocery store. Suppose that the store has annual cost of $150,000 for labor, $60,000 for rent and $30,000 for equipment. There is one-half probability that revenues will be $20,000 and a half probability that revenue will be $420,000 a. WHat is your accounting and economic profit?
AT the profit maximizing level of input use, which of the follow ng are true a. MVP =0 O MVP = MIC C. MPP = MVP d MVP-MVIC
Maximize profit 4D + 3WWith constraintsTime 3D + 2W ≤ 150Cost 2D + 4W ≤ 220D, W ≥ 0 We saw the best point was (20, 45) with profit 215. Use this problem and the notes to answer the following (except part 4):1 write true or false and then explain either response to this – the range of optimality on the D variable refers to how much the value 20 in the best point can go down or go up and this point is still the best,2 write true or false and the explain either response to this – the range of feasibility of the time constraint refers to the value 150 and how much if can change and the best point is still (20, 45),3 write true or false and explain either response to this – the shadow price of .125 on the cost constraint means that if the right hand side of the constraint (the 220) is anywhere between 100 and 300 then each 1 unit increase in this RHS (say from 100 to 101) will increase profit by 12.5 cents and any 1 unit decrease in this RHS will decrease profit 12.5 cents,4 write true or…
Suppose you are the manager of an Agriculture company that sells “commodities” in a perfect competition market. Your firm’s total cost function is TC = 20Q2 − 480Q + 1724. Unfortunately, due to Covid 19 pandemic, you must set the production output without knowing for certain the price that will prevail in the market. However, there is a 70 percent chance the market price will be $200 and a 30 percent chance it will be $600. a. Calculate the expected market price.b. What output should you produce in order to maximize expected profits?c. What are your expected profits?