ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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A salesperson is trying to sell cars. The number of cars that she will sell depends on her effort
"e" and her luck.
Given her effort e, with probability 4e she is able to sell four cars, and with probability (1 - 4e)
she is able to sell only one car. Her personal cost of effort is 100e².
The dealership pays her a bonus b for each car sold. The salesperson is risk-neutral, and
wants to maximize her expected utility, which is her expected income minus her effort cost.
a) Given the bonus b, the salesperson's best response function is
b) Suppose the dealership pays b = 2. Then the expected number of cars sold will be E(Q)=
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Transcribed Image Text:A salesperson is trying to sell cars. The number of cars that she will sell depends on her effort "e" and her luck. Given her effort e, with probability 4e she is able to sell four cars, and with probability (1 - 4e) she is able to sell only one car. Her personal cost of effort is 100e². The dealership pays her a bonus b for each car sold. The salesperson is risk-neutral, and wants to maximize her expected utility, which is her expected income minus her effort cost. a) Given the bonus b, the salesperson's best response function is b) Suppose the dealership pays b = 2. Then the expected number of cars sold will be E(Q)=
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