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A manager has a utility function U = C 0.5 if she does not work hard and U = C 0.5 - 1 if she does. Expected profit will increase from 1,400 to 1,600 if she works hard. The manager receives compensation C equal to 82 plus a portion x of any profit in excess of 1,400. What is the value of x that will make the manager indifferent between shirking and working hard?

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Solution Summary

The expert determines the value of x that will make managers indifferent between shirking and working hard. Compensation received by managers are determined.

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