Answer:
a. Jacob should earn= $100,000 + ($1,000,000 - $500,000)
= $100,000 + $500,000
=$600,000
Hence, Jacob earns $600,000
b. The economic rent is the amount by which payment of Jacob(600,000) exceed the reservation price of the supplier(100,000)
Thus, the economic rent = 600,000 - 100,000 = $500,000
Proportion of Economic rent = Economy rent / Salary of jacob
= $500,000 / $600,000
= 5/6
Hence, the proportion of the economic rent of Jacob is salary is 5/6
c. The advertising company will not be able to make an economic profit because if they withhold some additional revenue made because of hiring Jacob, then he will switch to another advertising company at a higher salary and that company keep on making profit. The company should bid for Jacob until firm are indifferent on paying $600,000 or hiring someone else for $100,000 . Thus, the bidding of Jacob will continue until the salary of Jacob has bid up to a level where no company can make economic profits
