Fixed compensation and sharecropping

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Reference no: EM132040567

Consider the production function f(E) = 2E - E2 where E denotes the level of a marketing agent’s effort at selling your novel. Assume the agent’s costs of effort is C = 4E. With an output price of p = 1, determine the level of effort, E, along with the profits for the principal (you) and the agent for each of the following situations:

a. Fixed Compensation: the agent receives a payment of $160.

b. Residual Claimant: the agent pays you a franchise fee of $64 and then runs the business herself and keeps the profits of the company

c. Sharecropping: the agent receives a 50% share of the output.

Reference no: EM132040567

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