4. A taproom owner is trying to determine how to structure his manager's compensation. One option he considers is a flat salary of $70,000 per year. The second option is a base salary of $30,000 plus 15% of the taproom's profit. If the manager puts a lot of effort into her job, the taproom's annual profit will be $500,000 with 75% probability and $100,000 with 25% probability. If the manager exerts only modest effort, the taproom's profit will be $500,000 with 25% probability and $100,000 with 75% probability. The manager's opportunity cost of putting a lot of effort into her job is $50,000, while her opportunity cost of exerting only modest effort is $25,000. a. Draw the game tree for the interaction. between the taproom owner and the manager. Assume that the taproom owner moves first. b. What is the equilibrium outcome for this game? What kind of contract should the taproom owner offer? What level of effort will the manager choose? Explain.

QUESTION 8 Manager C Effort Level Chance of Cost of effort success High Effort 0.9 100,000 Routine Effort 0.5 60,000 What is the minimum bonus that will entice high effort? O 1. 40,000 2. 260,000 3. 300,000 4. 400,000 5. 520,000 O 6. 60,000 O 7. 100,000 8.0

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2 Consider the two investments listed below with possible outcomes and probabilities: INVESTMENT (in $1000) SAFE RISKY INVESTMENT AMOUNTⓇ 40+ 40+ GOOD SCENARIO OUTCOME 45+ 80+ AVERAGE+ SCENARIO PROB OUTCOME 0.40* 0.40€ 42+ 45+ BAD+ SCENARIO PROB OUTCOME PROB 0.20 35+ 0.20 10+ 0.40€ 0.40+ b) a) Suppose I have utility function U(*) = (x)2. What is the expected utility from each investment? Which investment will I choose, if any? Show and explain your work and provide the intuition. c) What is the value of the risk premium for the SAFE investment? Show and explain your work and provide the intuition. d) What is the value of the risk premium for the RISKY investment? Show and explain your work and provide the intuition.< +

Im confused on how to complete this

The HR department is trying to fill a vacantposition for a job with a small talent pool. Validapplications arrive every week or so, and theapplicants all seem to bring different levels ofexpertise. For each applicant, the HR managergathers information by trying to verify variousclaims on resumes, but some doubt about fitalways lingers when a decision to hire or not isto be made. What are the Type I and II decision error costs? Which decision error is more likely tobe discovered by the CEO? How does this affectthe HR manager’s hiring decisions?

6- Suppose Firm B is selling 1 -year insurance contracts for houses. Suppose Firm B's customers are divided into three categories with different probabilities of needing a payment. First category will ask for a payment of 500000 with probability 0.10, the second category will ask for a payment of 250000 with probability 0.15 and the third category will ask for a payment of 100000 with probability 0.2 a. Calculate Firm B's expected payment for the year. Suppose Firm B has 120 customers in the first category, 230 in the second category and 405 in the third category. b. Calculate individual premium if Firm B charges the same amount to all its customers. 1 c. Calculate individual premium if Firm B utilizes the risk groups and charges the same amount of premium within groups d. Which group/groups are more likely to buy the insurance with group pricing compared to the case with uniform pricing?

6. A risk-averse individual is offered a choice between a gamble that pays $1000 with probability of 25% and $100 with probability of 75% or a pay- ment of $325. (a) Which gamble would he choose? (b) What is the payment was $320

955,000 30 se0,000 15. Jay Seago is suing the manufacturer of his car for $3.5 million because of a defect that he believes caused him to have an accident. The accident kept him out of work for a year. The company has offered him a settlement of 5700,000, of which Jay would receive $600,000 after attorneys' fees. His attorney has advised him that he has a 50% chance of winning his case If he loses, he will incur attomeys' fees and court costs of $75,000. If he wins, he is not guaranteed his full requested settlement. His attorney believes that there is a 50% chance he could receive the full settlement, in which case Jay would realize $2 million after his attomey takes her cut, and a 50% chance that the jury will award him a lesser amount of $1 million, of which Jay would get $500,000. Using decision tree analysis, decide whether Jay should proceed with his lawsuit against the manufacturer.

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