ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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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
$35,000 0.1
$46,000 0.1
$57,000 0.1
$68,000 0.1
$79,000 0.1
$90,000 0.1
$101,000 0.1
$112,000 0.1
$123,000 0.1
$134,000 0.1
 
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    _________ ($46,000/$57,000/$35,000/$68,000).
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