Alandowner pays a worker we + l to produce agricultural output (q), where w is the wage rate, e is worker effort and l is a lump sum payment. the output produced by the worker is q = f(e) = e and the price of output is $1 per unit. the worker’s total cost function is c(e) = e^2/2 and utility from the outside option is u = 1.
(i) what is the optimal value of l chosen by the owner? briefly comment onthe relationship between the workers’ outside option and the lump sum paymentmade from the owner to the worker.
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Alandowner pays a worker we + l to produce agricultural output (q), where w is the wage rate, e is w...
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