Maximization of economic profit for high mark

Reference no: EM1315479

High Mark Industries sells solar water heaters to households interested in lower energy bills and sustainable energy. High Mark has overproduced and has 600,000 water heaters sitting in inventory, which is double the number of units sold nationwide last year. The company wants to hire Rolando Maxima to oversee sales in its Pacific northwest territory - a territory that accounts for over 50% of its unit sales. Based on past performance, the average salesperson for this territory is able to sell (with full certainty) units on a monthly basis according to the following demand curve:

Qd = 20,000 - 40 P

The company knows with certainty that Rolando, with extra effort, can sell 4,000 more water heaters per month than the average salesperson no matter what price he charges. Rolando will accept the position at High Mark if it can match an offer of $3600 per month for a salaried position at another company. What type of compensation can High Mark offer and maximize its economic profit in the short term? (You do not need to production cost figures to answer this.) How might there be a potential principal-agent problem here?

Reference no: EM1315479

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