Paul is interested in hiring a computer programmer for his firm. He can either search for a potential employee himself or hire a head-hunter firm to find the employee for him. If he searches himself, there is a 30- chance of not hiring the right person for the job. In contrast, the head- hunter will always find the right match. If the right person is not found for the job, the value of the programming is only RM5,000 compared to RM40,000 for the right person. Paul's risk aversion is represented by a logarithmic utility function. What is the maximum amount Paul would be willing to pay the head-hunter? (a) RM 29,500.00 (b) RM 21,375.48 (c) RM 18,624.52

Paul is interested in hiring a computer programmer for his firm. He can either search for a potential employee himself or hire a head-hunter firm to find the employee for him. If he searches himself, there is a 30- chance of not hiring the right person for the job. In contrast, the head- hunter will always find the right match. If the right person is not found for the job, the value of the programming is only RM5,000 compared to RM40,000 for the right person. Paul's risk aversion is represented by a logarithmic utility function. What is the maximum amount Paul would be willing to pay the head-hunter? (a) RM 29,500.00 (b) RM 21,375.48 (c) RM 18,624.52

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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