A firm has developed incentive pay to encourage more effort from its workers. When a Worker A puts forth more effort, she gives up leisure time valued at $10,000. The firm pays a bonus of zero for revenue less than $40,000 and a $20,000 bonus for revenue more than $40,000. Assuming that Worker A has some influence over the revenue outcome, there is a 75% chance that revenue will be more than $40,000 but a 25% chance that revenue will be less than $40,000. What is the expected value of the bonus less the value of extra effort for Worker A?

0 votes
    There is not enough information provided to determine the expected bonus.
     $5,000
     $15,000
     $20,000
asked Jun 2, 2013 in Economics by anonymous
    

1 Answer

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$5,000
answered Jun 3, 2013 by Xyz ~Expert~ (3,650 points)

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