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Indifferent between accepting and not accepting the contract

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a) The CEO of Apple is granted a stock option. The option allows him to buy 50,000 shares of Apple's stock at its price today, which is $160 a share, between October 2018 and October 2020. If the share price of Apple rises to $185 a share during that period, how much profit will the CEO be able to make by exercising his stock option?

b) Blue Sox, a baseball team, wants to hire Mickey as its manager. Mickey's time endowment is 24, which he allocates between leisure (x) and effort (e). His utility function is given by u(x,w) = xw. Blue Sox' profit (pi) will be produced by Mickey's effort according to the function pi = 10e. If Mickey does not work for Blue Sox, his next best alternative is to become an ESPN commentator where his utility will be 1200. If Blue Sox offer Mickey the wage contract w = F +0.5pi, what amount of base salary F will make Mickey just indifferent between accepting and not accepting the contract?

Reference no: EM131691763

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