Question

suppose 25% of workers in a market are willing to work for $55,000 and 75% of workers are willing to work for $63,000. if the cost of the search equals $1200, what should the manager do? multiple choice question. continue searching since the expected benefit exceeds the cost. stop searching since the expected benefit is less than the cost. stop searching since the expected benefit exceeds the cost. continue searching since the expected benefit is less than the cost.

Answer 1

The manager should continue searching for workers because the expected benefit of hiring a worker at a lower wage exceeds the cost of the search.

Step-by-step explanation:

To determine whether the manager should continue searching for workers at a lower wage or hire at the current offer, we can calculate the expected benefit of continuing the search and compare it to the cost of searching.

There are 25% of workers willing to work for $55,000, and 75% willing to work for $63,000. The expected wage if searching continues is therefore (0.25 * $55,000) + (0.75 * $63,000) = $13,750 + $47,250 = $61,000.

The cost of searching is $1,200, while the savings from finding a worker at the lower wage is $63,000 - $61,000 = $2,000. As the expected savings exceed the cost of searching, the manager should continue searching since the expected benefit exceeds the cost.