Reference no: EM133130281

Consider the salary of Mary, a sales worker for an advertising company. Her weekly wage package is W = 1,000 +0 .4Q, where Q is her dollar volume of sales. Her productivity is Q = 200e +μ, where e denotes her hours of effort and , μis a random variable with a mean of 0 (This implies that her effort is not observable.). She has an effort cost of C = e2.

Answer the following questions under this contract.

(1) If Mary works an additional hour, the expected value of her wages rise by dollars.

(2) Her choice of effort will be hours.

(3) The expected value of her total wages will be dollars.

(4) If her reservation wage is $5,000, doe she accept this job? If she does not accept, what kind of changes should the company introduce in her weekly wage package. Please answer at least two different measures with using numerical examples.

(5) We assumed that her effort is observable. We now assume that her effort is observable. Her choice of effort will be hours.

(6) We assumed that she does this job and gets her wage.

We now assume that she does this job but she is also an owner of the company and there are no other workers. Her choice of effort will be hours.