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Andrew Shapiro is a sales agent for ABC Company. He has an effort cost function of C = e2 and a reservation wage of $1,500.His wage package is W = 1,500 + 0.2Q where the CEO sets the incentive at 0.2 and Q = 200e. Q is the output.
A. If the CEO increases the incentive from 0.2 to 0.25, what happens to the Andrew's effort?
B. If the CEO increases the incentive from 0.2 to 0.25, what happens to ABC Company's profit?
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