Question

Suppose you are a risk-neutral manager attempting to hire a new sales manager. All of the workers in the market have the same ability to manage and sell, but they differ with respect to the wage at which they are willing to work for your company. The market for sales managers is composed of three types of individuals: 85 percent are willing to work for $75,000 and 15 percent are willing to work for $85,000. The first interviewee is only willing to work for $85,000. If the human resource director spends five hours interviewing each candidate and the opportunity cost of this director's time is $500, then the director should:

Answer 1

Answer: If the human resource director spends five hours interviewing each candidate and the opportunity cost of this director's time is $500, then the director should: Search again since the expected benefit of an additional search exceeds the cost

Step-by-step explanation:

Expected benefit = (85,000 – 75,000) × 0.15= 10,000 × 0.15 = 1500

Cost = 500

$1,500 > $500

i.e. Expected benefit > Cost.

Therefore, If the human resource director spends five hours interviewing each candidate and the opportunity cost of this director's time is $500, then the director should: Search again since the expected benefit of an additional search exceeds the cost