Business, 18.12.2019 00:31 zayzay162

Consider the problem of a big corporation (the principal) buying an intermediate good from a small supplier (the agent), but being unable to specify a level of quality in the contract. assume that the agent's utility level in each period depends on the price she receives and the quality she provides. specifically, per-period utility is determined by equation 10.1 in the textbook (page 422). assume that u = 2 . the termination function that determines the likelihood that the corporation will renew the contract to its supplier is also the same used in the textbook: t=1-9. all other assumptions regarding the principal are the same as in the textbook, and the fallback position of the agent is equal to zero: z = 0. (c) profit maximization implies that the principal will offer a price satisfing the following condition: (d) what is the price that the principal will offer to the agent?(e) what is the quality level that will be provided by the agent?

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