Priscilla hires Arnie to manage her store. Amie's effort is given in tho lett column of tho table Each cel shows the net profit to the Priscilla (ignoring Arnie's cost of effort) Low Demand Low Effort...

1

Extracted text: Priscilla hires Arnie to manage her store. Amie's effort is given in tho lett column of tho table Each cel shows the net profit to the Priscilla (ignoring Arnie's cost of effort) Low Demand Low Effort Modium Effort High Effort 100 200 400 High Demand 200 400 500 Arnie's personal cost of offort is 0 at low effort, 50 at medium effort, and 150 at high etfort. It is equally likely that demand will be low or high Amie and Priscila are risk-noutral They considor two possiblo contracts (1) fixod fee Armio recoives a foxed wage of 50, and (2) protit sharing Arnie recoives 50% of the firm's net income but no wage What happens if they use the fixod foo contract? With the fixed fee contract, Arnie will put forth What happens if they use the profit-sharing contract? v offort With the profit-sharing contract, Arnie will put forth effort Which contract does each prefer? Arnie and Priscilla