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Expected profit from a new hire chosen

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1). Assume that there are two types of applicants: Blues and Greens. Blues are more productive than Greens, so that Blue output is $150,000 in output per year and Green output is $85,000 in output per year. Within the applicant pool, 50%are Blues and 50% are Greens. The firm pays $50,000 per year in wages to those candidates it hires.

a. What is the expected profit from a new hire chosen at random from the applicant pool? Limit your analysis assuming one year of employment.

2). Using the information from Question 1 (above), further assume that a screening device with an accuracy of 75% is available at a cost of $10,000 per candidate.

2A). Should the firm use the screening device?

B). Why or why not?

Reference no: EM131439861

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