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COMM_V 295 105 106 2025W1 Participation/Math Quiz #3

Numerical

If you put high effort there is 30% chance of contributing $100 and 70% chance of $200,  The cost of high effort to you is $20. If you put low effort, there is 40% chance of contributing $20 and 60% chance of $100.  The cost of low effort is zero. If your contribution is $100 or higher, you will get a Bonus of B dollar. For what value of B, will you put high effort?   (Hint: you will put high effort if your expect income net of cost is higher from high effort than from low effort)    

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We start by outlining the two choices and their monetary structures. High effort: There is a 30% chance of contributing 100 and a 70% chance of contributing 200. The expected contribution is 0.3*100 + 0.7*200 = 30 + 140 = 170. The cost of high effort is 20, so the net from effort cost alone is 170 - 20 = 150. Since any contribution of 100 or more tri......Login to view full explanation

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