5. Peter Higgins is a sales agent for XZY Company. He has an effort cost function of C = e2 and a reservation wage of $1500. His wage package is W = 1500 + 0.2Q where the CEO sets the incentive at 0.2 and Q = 200e. Q is the output. If the CEO increases the incentive from 0.2 to 0.25 what happens to the Peters effort? Will profits rise or fall?6. Two consumers Justin and Cindy of the same product have the following demand curves: Q1 = 500 10 P and Q2 = 500 20 P. The marginal cost (MC) for the firm is $10. Calculate the prices when the firm discriminates between the two consumers. Is this a good strategy or should the firm charge the same price to both of them?
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