Answered: You need to hire some new employees to…

A First Course in Probability (10th Edition)

10th Edition

ISBN:9780134753119

Author:Sheldon Ross

Publisher:Sheldon Ross

Chapter1: Combinatorial Analysis

Section: Chapter Questions

Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...

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Question

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You need to hire some new employees to staff your startup venture. You know that potential employees are distributed throughout the population as follows, but you can't distinguish among them:

Employee Value	Probability
$50,000	0.125
$69,000	0.125
$88,000	0.125
$107,000	0.125
$126,000	0.125
$145,000	0.125
$164,000	0.125
$183,000	0.125

The expected value of hiring one employee is

Suppose you set the salary of the position equal to the expected value of an employee. Assume that employees will not work for a salary below their employee value.

The expected value of an employee who would apply for the position, at this salary, is

Given this adverse selection, your most reasonable salary offer (that ensures you do not lose money) is .

Expert Solution

Step 1: Introduce the given information

Here the given table is:-

Employee value	probability
$ 50000	0.125
$69000	0.125
$88000	0.125
$107000	0.125
$126000	0.125
$145000	0.125
$164000	0.125
$183000	0.125

Using formula ,

$E x p e c t e d space v a l u e space equals space E left parenthesis x right parenthesis space equals space sum for blank of X times P left parenthesis x right parenthesis$