Anna Peterson is a worker for ABC Company. She has an effort cost function of C = 2e 2 and a monthly reservation wage of $2,500. Her wage function is...

Anna Peterson is a worker for ABC Company. She has an effort cost function of C = 2e2 and a monthly reservation wage of $2,500. Her wage function is W = 2,500 + 0.4Q. If the incentive coefficient is equal to 0.4 then Q = 300e. Q is Anna’s output. Assume that the incentive coefficient decreases from 0.4 to 0.3 and Anna’s base salary increases from $2,500 to $2,700.

(1) What will happen to her level of effort? (10 points)

(2) How will this change ABC Company’s profits? (15 points)

Be sure to explain and interpret your calculations.