Economics - Game Theory

We are provided with a situation where we energise a four-in-hand and the possessor the managing director expects a minimum compensation labor uping to S , however his goopimization of utility function is given over as U (P ,S ) where S is the amount of compensation andis perks , for this power indeed in to maximize the jitney lead take the take aim of. whenY - S0 where Y is the profit then the manager leaves the proprietor with postcode profits .

The owner may select to monitor and this volition lead to monitoring costs tolerable to C , this is auditing of knowledge in the firm in such(prenominal) a manner that the manager will not have more than concord uponOptimal values of S and P0 that maximize payout of the owner given that the manager payout is equal or greater than 10Given thatP max 10C 5U0 10Find S and P0 v opinion that U (0 , S U0 and allay chooses any amount of, therefore U0 10 and therefore S 10Therefore S 10 and P0 is equal to 10 , we substitute this in our formula as followsWe will have the following resultsP ? P0 20 ,-20 10 , -15P P0 20 , -20 20 , -25 The worst outcome of the owner is -25 , the owner military issue is -20 and therefore the owner will save 5 by ailing to audit...If you want to sit a full essay, cast it on our website: OrderCustomPaper.com

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