Problem
Suppose the cost of effort function for an employee is
c (e) = 0 if e ≤ 35 = 0.5 (e - 35) 2 if e > 35
where e is given in hours worked per week. Moreover, each unit of ?? produces an extra $100 in sales. The firm offers a salary-plus-commission job of $600 per week plus 20% of sales.
1. Calculate the effort level at which the employee maximizes his payoff.
2. What is the employee's actual salary when he works to maximize his payoff? Given the market wage is $1200, will the employee accept this offer?