10. A principa l-agent problem: A case of shirking Juanita sells bottled water f
ID: 1144193 • Letter: 1
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10. A principa l-agent problem: A case of shirking Juanita sells bottled water from a small stand by the beach. On the last day of summer vacation, many people are on the beach, and Juanita realizes that she can make a lot more money this day if she hires someone to walk up and down the beach selling water. She finds a college student named Gilberto and makes him the following offer: They'll each sell water all day and split thein earnings equally at the end of the day. Juanita knows that if they both work hard, Gilberto will earn $110 on the beach and Juanita will earn $240 at her stand, so they will each take home half of their total revenue:175. If Gilberto shirks, he'll generate only $60 in earnings. Juanita does not know that Gilberto estimates his personal cost (or disutility) of working hard as opposed to shirking at $30 Once out ouanita's sight, Gilberto faces a dilemma: work hard (put in full effort) or shirk (put in low effort) In terms of Gilberto's total utility, it is worse for him to Taking into account the loss in utility that working hard brings to Gilberto, Juanita and Gilberto together better off if Gilberto shirks instead of working hard. Juanita knows Gilberto will shirk if unsupervised. She considers hiring her good friend Carrie to keep an eye on Gilberto. The most Juanita should be willing to pay Carrie to supervise Gilberto, assuming supervision is sufficient to encourage Gilberto to work hard, is It turns out that Juanita's friend Carrue is unavilable that day, so Juanita cannot find a reliable person to watch Gilberto. Which of the following arrangements will ensure that Gilberto works hard without making Juanita any worse off than she is when Gilberto shirks? Make Gilberto promise to work hard o Allow Gilberto to keep 57% of the revenue from the bottles of water he sells instead of 50% Pay Gilberto20, regardless of how many bottles of water he sells Allow Gilberto to keep 75% of the revenue from the bottles of water he sells instead of 50% Grade H NowExplanation / Answer
2. Opportunity cost is the value of next best alternative foregone. From movement from M to L, production of shirts reduces by 2000 per day.
After technological advancement, opportunity cost = 12000 - 8000 = 4000 per day
The price of shirt has doubled relative to the price of a haircut.
3. Equilibrium quantity is 4.5 tons of bolts.
Incomplete data to answer other blanks.
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