The issue here is how to get your CEO to make high effort but not give away the company store-that is,too much in profits.For each package first calculate whether the executive will make high or low effort.Ther calculate firm profits under each effort to decide if the package works to your advantage.Then select that package which maximizes your profits. CEO Utility under the three packages: PACKAGE 1:the CEO will give low effort to maximize utility: LowE0rtEU月=(S575.000)-5=758.29 High Eff6rt:EU)=($575.000)5.100=G58.29 PACKAGE 2:the CEO will give high effort to maximize utility: Low Effort:EU)=.3.06x5.000.000).5+4(.06x10.000.000)E +.3.06x15,000,000)3=758.76 High Ef0rt:EU)=.3.06x10,000.000)5+406x15,00,000) +.3.06x17,000,000) -100=814.835 PACKAGE the CEO will give high effort to maximize utility: LowE0rt:EU=.3500.000)-5+.4500.000)5+.3500.000)3= 707.11 High Effort:EU)=.3500,000)5+.4(500,.000)5+.3(1,500,000)3 100=762.40 Now calculate the expected firm profits under each plan net of expected compensation: PACKAGE 1 Low Effrt:E(m）=30x85m+.40xs10m+.30xS15m·(S.575m)= PACKAGE 2 Low Effort:E(I)=.30x$5m+.40x$10m +.30x$15m-(3x$.3m+.4x$.6m +.3x$.9m)=$9.4m High Effort:E(I1)=.30x$10m +.40x$15m +.30x$17m (.3x$.6m 8.4xS.9m+.3xs1.02m)=$13.254m PACKAGE 3: Low Effort:ED=.30x85m+.40x$10m+.30x$15m·(3x8.5m+8.4x8.5m +.3x$.5m）=$9.5m High Effort:E()=30x$10m+.40x815m+.30x817m.(.3x8.5m+ 8.48.5m+.3xs1.5m)=$13.3m To maximize the expected profits of ASp Industries,you recommen compensation PACKAGE 3 which uses a flat salary and then a large The issue here is how to get your CEO to make high effort but not give away the company store – that is, too much in profits. For each package, first calculate whether the executive will make high or low effort. Then calculate firm profits under each effort to decide if the package works to your advantage. Then select that package which maximizes your profits. CEO Utility under the three packages: PACKAGE 1: the CEO will give low effort to maximize utility: Low Effort: E(U) = ($575,000).5 = 758.29 High Effort: E(U) = ($575,000).5 - 100 = 658.29. PACKAGE 2: the CEO will give high effort to maximize utility: Low Effort: E(U) = .3(.06x5,000,000).5 + .4(.06x10,000,000).5 + .3(.06x15,000,000).5 = 758.76 High Effort: E(U) =.3(.06x10,000,000).5 + .4(.06x15,000,000).5 + .3(.06x17,000,000).5 - 100 = 814.835 PACKAGE 3: the CEO will give high effort to maximize utility: Low Effort: E(U) = .3(500,000).5 + .4(500,000).5 + .3(500,000).5 = 707.11 High Effort: E(U) =.3(500,000).5 + .4(500,000).5 + .3(1,500,000).5 - 100 = 762.40 Now calculate the expected firm profits under each plan net of expected compensation: PACKAGE 1: Low Effort: E() = .30x$5m + .40x$10m + .30x$15m - ($.575m) = $9.425million PACKAGE 2: Low Effort: E() = .30x$5m + .40x$10m + .30x$15m - (.3x$.3m + .4x$.6m + .3x$.9m) = $9.4m High Effort: E() = .30x$10m + .40x$15m + .30x$17m - (.3x$.6m + $.4x$.9m + .3x$1.02m) = $13.254m PACKAGE 3: Low Effort: E() = .30x$5m + .40x$10m + .30x$15m - (.3x$.5m + $.4x$.5m + .3x$.5m) = $9.5m High Effort: E() = .30x$10m + .40x$15m + .30x$17m - (.3x$.5m + $.4x$.5m + .3x$1.5m) = $13.3m To maximize the expected profits of ASP Industries, you recommend compensation PACKAGE 3 which uses a flat salary and then a large