Calculate the optimal lifetime incomes and firms, Managerial Economics

Assignment Help:

Dan and Ann are chemical engineers working for a biotech company. Each of them would like to be promoted to a managerial position, but only one of them can get the job. Their supervisors have indicated that the one who produces more publications in scientific journals over the next three years will be promoted. Each published article increases the firm's revenue by $10 (take the numbers to be in 1,000s).

The number of articles each can produce depends on how hard they work. If y is the number of published articles at the end of the third year, then yA = 0.5eA + _A and yD = 0.5eD + _D, where e represents effort and _ is a luck factor over which the researchers have no control. _A and _D are distributed such that (_A - _D) is uniform on [-½, ½]. Both Dan and Ann are risk-neutral and have disutility of effort given by C(e) = 2e2.

Let w0 = 0 be the wage each of the two gets during the three years before the promotion decision, W+ the lifetime income of a manager and W- the lifetime income of the employee who was not promoted. The firm wants to set the wages so as to maximize profit. Dan and Ann are willing to engage in the promotion contest if their expected lifetime utility is at least zero.

Calculate the optimal lifetime incomes W+ and W- the firm will promise the employees. What are the firm's expected profits from hiring Dan and Ann?

 

 


Related Discussions:- Calculate the optimal lifetime incomes and firms

ME, Is a “perfectly competitive market” an efficient mechanism for the allo...

Is a “perfectly competitive market” an efficient mechanism for the allocation of scarce resources? When it is, explain why. When it is not, document reasons for either inefficient

Price elasticity of demand, For some time, two firms have charged $0.90 per...

For some time, two firms have charged $0.90 per standard unit of crating materials for shipping a particular type of machine tool and each has been selling about 20,000 units per m

What are the concept of managerial economics, Concept of Managerial Economi...

Concept of Managerial Economics The discipline of managerial economics deals with characteristics of economics and tools of analysis that are used by business enterprises for dec

Theories of economic growth-neoclassical theory, Neoclassical Theory Th...

Neoclassical Theory The neoclassical theory of economic growth began its career in the fifties and since the mid fifties a sizeable literature has developed. The theory largely

fiscal policy, What do you mean by the fiscal policy? What are the instrum...

What do you mean by the fiscal policy? What are the instruments of fiscal policy? Briefly comment on India's fiscal policy.

Revenue, definition of total revenue,marginal revenue,average revenue

definition of total revenue,marginal revenue,average revenue

Managerial Economics, Calculate point elasticity of demand for demand funct...

Calculate point elasticity of demand for demand function Q=10-2p for decrease in price from Rs 3 to Rs 2

Massage therapy services, Suppose a given demand curve for massage therapy ...

Suppose a given demand curve for massage therapy services. In the context of giving massage therapy services, list, and explain in detail, 5 different variables that may cause an i

Discouting priciple, Using the discounting principle calculate the present ...

Using the discounting principle calculate the present value of an annuity of five years at Rs. 500 payments made at the end of each of the next five years at 10% interest. stion..

Managerial Economics, Calculate point elasticity of demand for demand funct...

Calculate point elasticity of demand for demand function Q=10-2p for decrease in price from Rs 3 to Rs 2

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd