A Manager Has a Utility Function U = C ⁰

question 6

Multiple Choice

A manager has a utility function U = C ^0.5 if she doesn't work hard and U = C ^0.5 - 1 if she does.Expected profit will increase from 1,500 to 1,600 if she works hard.The manager receives compensation C equal to 81 plus a portion x of any profit in excess of 1,500.What is the value of x that will make the manager indifferent between shirking and working hard?

• A) 0.09.
• B) 0.105.
• C) 0.19.
• D) 0.242.
• E) None of the above.

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Definitions:

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