Use the Following Example to Review the Basic Incentive Problem

question 30

Essay

Use the following example to review the basic incentive problem in the owner/ employee conflict.Assume perfect contracting possibilities.Chef Tom Malone is the key employee for FancyFoods.His utility is defined by
U = I - e² and his reservation wage is $2,000 per week.
FancyFoods costs = Malone's wages = $2,000 + e²
FancyFoods benefits = revenue = 300e
Profits = Revenues - Costs
Compute the optimal wage bill for Chef Malone,the revenues for FancyFoods,and the profits earned by FancyFoods.

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