Categorized into productivity levels

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Reference no: EM13740085

An investment bank is planning to interview 10 job candidates, randomly chosen from the applicant pool. Individuals differ in their abilities to put together deals and perform other functions that are part of an investment banker’s job. Past experience has shown that individuals can be categorized into productivity levels given by the following table:

Type: [A B C D E]

Proportion of Applicant Pool: [.1 .2 .3 .3 .1]

Average Output: [-100 0 50 100 200]

(a) If the firm hires all 10 of the job candidates, what would be its expected profit (assuming the firm only incurs labor costs)? (b) suppose the firm can put workers through a series of tests before hiring them. The set of exams costs $1,000 per worker to administer, but gives definitive information on whether the worker is Type A or B before being hired. If the firm interviews 10 job candidates, how many is it expected to hire with the screening in place? What is the expected profit with the screening approach?

Reference no: EM13740085

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