Compute The Expected Value of Profits from Hiring Candidate Questions
Description
Question 5: If a firm successfully engages in product innovation, resulting in monopoly power for the new good/service, which of the following is generally true?
Answer: None of these is generally trueQuestions 7: Which of the following would be the best example of an architectural innovation in computing technology?Answer: None of these are architectural innovationsQuestions 9: Using the graph below, which of the following areas shows the profits accrued to the firm that successfully engages in a product innovation?
Answer: D (white space)
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QUESTION 1
This question has multiple parts.
Imagine you are a firm that needs to hire a new employee.
Salary offer is $75000. You offer a 5-year contract.
2 candidates
Candidate a is a safe bet: he/she already
has experience in the sector. You know that
he/she can produce $80000 of value each year
with certainty
Candidate b doesnt have any experience.
He/She may be a star (with probability 30%), and
lead to $200000 of value, but he/she may also be
incompetent, and cause a loss of $200000 (with
probability 70%)
1. The expected value of profits from hiring candidate “a” for
5 years is _______
2. The expected value of profits from hiring candidate “b” for
5 years is__________
Now you have to decide what is the best candidate for the firm.
1. Suppose that you have the option to fire a candidate 2
years after hiring him/her. Who are you going to hire?
_________
2. Explanation: the expected profits from hiring candidate “a”
are __________
3. the expected profits from hiring candidate “b”
are_________
4. Suppose that you have the option to fire a candidate 6
months (i.e. 0.5 years) after hiring him/her. Who are you
going to hire?_________________
5. Explanation: the expected profits from hiring candidate “a”
are_______
6. the expected profits from hiring candidate “b” are______
QUESTION 2
This question has multiple parts!
Imagine you are a firm that wants to increase its sales by
$3000000 in the next month. You can hire either college
graduates, or high school graduates (note: both produce
more sales than their salary, so its
profitable to hire both)
High school graduates
Annual salary: $25000
Monthly sales: $50000
College graduates
Annual salary: $100000
Monthly sales: $150000
1. How many College graduates would you need to hire to
reach your goal?______________
2. How many High-School graduates would you need to hire
to reach your goal? ____________
3. You should hire ________because their salary to sales
ratio is _________, which is lower than the salary to ratio of
____________.
4. Your total wage bill from this hiring decision will be
________
QUESTION 3
Suppose that you have the following utility
function u(y) = (100, 000 + y)1?a /(1 ? a)
You have two candidates: one is a safe bet, and it
will give you net income y = $150,000 with certainty.
Another is not, and it may be a star and produce net
income yh = $400,000 with probability 50%, or be a
bust and produce yL = ?$99,999.5 with probability
50%.
Which candidate would you choose if a = 0.5?
Candidate a
Candidate b
Neither
Not enough
information
QUESTION 4
As the famous show the Office has taught us
over the years, in the paperselling business sales
people can be either stars (like Jim Halpert, Dwight
Schrute, and Michael Scott) or busts (like every
other sales person at the office: Andy Bernard, Pam
Beesely, Stanley Hudson, Ryan Howard, and Phyllis
Vance). Suppose you are Michael Scott (the
regional manager): you know that if Eric (the intern)
is a star, he will sells more than $300,000 worth of
paper at Dunder Mifflin Inc. in his first year with 80%
probability (while with probability 20% he wont). If
Eric is a bust, he will sell less than $300,000 in his
first year with a probability of 60% (and there is a
40% probability he wont). Suppose Eric sells
$220,000 in his first year. What is your updated
probability that Eric is a bust? (Note: build your
prior probability of finding a star using the current
universe of sales people: out of a total of 8 sales
people, 3 are stars).
If your answer is 65.347%, report 65.34
________________________
QUESTION 1
An endeavor that aims to increase the understanding of a topic or
field to meet a specific need is known as:
Developm
ent
Applied
Res
earc
h
Basic
Res
earc
h
Innovation
QUESTION 2
An enhancement of the stock of knowledge is referred to as:
Cre
Inn
Imit
Inv
QUESTION 3
The implementation of creative ideas into some new device or
process is called:
Imit
Inv
Inn
Cre
QUESTION 4
Which of the following is the most important source of R&D
spending in the US?
Private
Nonprofit
s
Governmen
t
Higher
Educ
ation
Private
Busin
ess
QUESTION 5
If a firm successfully engages in product innovation, resulting in
monopoly power for the new good/service, which of the following is
generally true?
The new market will generate surplus for the innovating
firm, but an inefficiently low level of the good will
be produced and consumed.
None of these is generally true.
The new market will generate surplus for the innovating
firm, but an inefficiently high level of the good will
be produced and consumed.
The innovating firm will not be able to earn any producer
surplus from the production and sale of the new
product/service.
QUESTION 6
Which of the following is NOT one of the key stages of the
innnovation process?
Commercialization
Research and
Development
Imitation
Diffusion
QUESTION 7
Which of the following would be the best example of an
architectural innovation in computing technology?
Improved storage capacity
More powerful processors
None of these are architectural
innovations.
Chromebooks
QUESTION 8
Which of the following would be the best example of a process
innovation?
The first electric vehicles introduced to the car
market.
The iPod.
The LED lightbulb.
Producing textiles in a factory setting.
QUESTION 9
Using the graph below, which of the following areas shows the
profits accrued to the firm that successfully engages in a product
innovation?
B (Blue
Spac
e)
A (Green
Spac
e)
D (White
Spac
e)
C (Orange
Spac
e)
QUESTION 10
Which of the following best captures the application of marginal
analysis to the decision to innovate?
Innovate if the innovation is incremental and avoid radical
innovation.
Innovate if the expected profits from the innovation are
greater than the expected costs of conducting the
research and development of the innovation.
Innovate if the research and development generates a
product that actually works.
Innovate if the expected profits from the innovation are
greater than the expected costs of developing,
manufacturing, and selling the innovation.
QUESTION 11
Suppose a monopolists per-period demand curve for a new
software program is given by p = 600 ? 3q, and the firm’s cost function is
given by:
What is the monopolists profit-maximizing quantity sold?
(Use only whole numbers in your answer)
_____________________
QUESTION 12
Suppose a monopolists per-period demand curve for a new
software program is given by p = 600 ? 3q, and the firm’s cost function is
given by:
What is the monopolists profit-maximizing price?
(Do not use the dollar sign in your answer, and use only whole numbers
with no decimals)
_________________
QUESTION 13
Which of the following would NOT be expected to result from a
marginal cost reducing process innovation for a perfectly competitive
firm?
An increase in the economies of scale.
An increase in the optimal quantity
produced by the firm.
A gain in profits for the firm.
A decrease in the economies of scale.
QUESTION 14
Which of the following is a potential reason why government
policy may be needed with respect to innovation?
All of these are legitimate reasons to expect
government to form innovation policy.
New knowledge underlying innovation is potentially
a public good.
Successful R&D and innovation potentially have
spillover effects and positive externalities.
Competition for innovative ideas may lead to
wasteful R&D spending.
Econ 333 Lecture 1
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Economics of Workplace Management – Econ 333
CSU East Bay
Economics of Workplace Management – Econ 333
CSU East Bay
Econ 333
Econ 333
Lecture 1
Lecture 1
Economics
Economics of Hiring: the Role of Risk
Economics of Hiring: the Role of Risk
Instructor: Filippo Rebessi
Email: filippo.rebessi@csueastbay.edu
Instructor: Filippo Rebessi
Email: filippo.rebessi@csueastbay.edu
2
Economics of Workplace Management – Econ 333
CSU East Bay
This Lecture
1.
Introduction to Economics of Hiring
Key Concepts
1.
2.
3.
4.
Expected Value; Option Value
Salary to Output Ratio
Productivity
Bayesian Learning
Readings
Chapter 1, Lazear-Gibbs
3
Economics of Workplace Management – Econ 333
CSU East Bay
Setting Hiring Standards
4
?
We will go over 2 simple examples to familiarize with some important
(and maybe counter-intuitive) concepts in Personnel Economics
1.
Hiring a safe candidate over a risky one is not always a good idea
2.
Cheap labor is not necessarily low-cost labor
?
We will also go over an important way to learn from observations:
Bayesian Learning
Economics of Workplace Management – Econ 333
CSU East Bay
Setting Hiring Standards – Example #1
Calculating an expected value
Event 1: win 100; probability 0.3
Event 2: win 200; probability 0.1
Event 3: no gain; probability 0.6
Expected value: 0.3*100+0.1*200+0.6*0=50
5
Economics of Workplace Management – Econ 333
CSU East Bay
Setting Hiring Standards – Example #1
Calculating expected utility
Utility Function: log(1+x)
Event 1: win 100; probability 0.3
Event 2: win 200; probability 0.1
Event 3: no gain; probability 0.6
Expected utility: 0.3*log(1+100)+0.1*log(1+200)+0.6*log(1)=1.914
6
Economics of Workplace Management – Econ 333
CSU East Bay
Setting Hiring Standards – Example #1
?
Imagine you are a firm that needs to hire a new employee. Salary
offer is $100. You offer a 10-year contract.
?
2 candidates
? Candidate a is a safe bet: he/she already has experience in the
sector. You know that he/she can produce $200 of value each
year with certainty
How do we
choose?
?
7
Candidate b doesnt have any experience. He/she may be a
star (with probability 50%), and lead to $500 of value, but he/she
may also be incompetent, and cause a loss of $100 (with
probability 50%)
Economics of Workplace Management – Econ 333
CSU East Bay
Setting Hiring Standards – Example #1
?
?
?
?
How to choose?
? Expected value of net profits
? We will see its not necessarily a good idea, and why
? Expected value: each payoff is weighted by the probability
of its occurrence
Calculate expected value from both workers (assume no discounting)
Candidate a:
($200-$100)*10=$1,000
Candidate b: 50%*($500-$100)*10+50%(-$100-$100)*10=
Share
Econ 333 Lecture 1
File
Edit
Present
to Drive
View Saved
Tools
Help
View only
1
Economics of Workplace Management – Econ 333
CSU East Bay
Economics of Workplace Management – Econ 333
CSU East Bay
Econ 333
Econ 333
Lecture 1
Lecture 1
Economics
Economics of Hiring: the Role of Risk
Economics of Hiring: the Role of Risk
Instructor: Filippo Rebessi
Email: filippo.rebessi@csueastbay.edu
Instructor: Filippo Rebessi
Email: filippo.rebessi@csueastbay.edu
2
Economics of Workplace Management – Econ 333
CSU East Bay
This Lecture
1.
Introduction to Economics of Hiring
Key Concepts
1.
2.
3.
4.
Expected Value; Option Value
Salary to Output Ratio
Productivity
Bayesian Learning
Readings
Chapter 1, Lazear-Gibbs
3
Economics of Workplace Management – Econ 333
CSU East Bay
Setting Hiring Standards
4
?
We will go over 2 simple examples to familiarize with some important
(and maybe counter-intuitive) concepts in Personnel Economics
1.
Hiring a safe candidate over a risky one is not always a good idea
2.
Cheap labor is not necessarily low-cost labor
?
We will also go over an important way to learn from observations:
Bayesian Learning
Economics of Workplace Management – Econ 333
CSU East Bay
Setting Hiring Standards – Example #1
Calculating an expected value
Event 1: win 100; probability 0.3
Event 2: win 200; probability 0.1
Event 3: no gain; probability 0.6
Expected value: 0.3*100+0.1*200+0.6*0=50
5
Economics of Workplace Management – Econ 333
CSU East Bay
Setting Hiring Standards – Example #1
Calculating expected utility
Utility Function: log(1+x)
Event 1: win 100; probability 0.3
Event 2: win 200; probability 0.1
Event 3: no gain; probability 0.6
Expected utility: 0.3*log(1+100)+0.1*log(1+200)+0.6*log(1)=1.914
6
Economics of Workplace Management – Econ 333
CSU East Bay
Setting Hiring Standards – Example #1
?
Imagine you are a firm that needs to hire a new employee. Salary
offer is $100. You offer a 10-year contract.
?
2 candidates
? Candidate a is a safe bet: he/she already has experience in the
sector. You know that he/she can produce $200 of value each
year with certainty
How do we
choose?
?
7
Candidate b doesnt have any experience. He/she may be a
star (with probability 50%), and lead to $500 of value, but he/she
may also be incompetent, and cause a loss of $100 (with
probability 50%)
Economics of Workplace Management – Econ 333
CSU East Bay
Setting Hiring Standards – Example #1
?
?
?
?
How to choose?
? Expected value of net profits
? We will see its not necessarily a good idea, and why
? Expected value: each payoff is weighted by the probability
of its occurrence
Calculate expected value from both workers (assume no discounting)
Candidate a:
($200-$100)*10=$1,000
Candidate b: 50%*($500-$100)*10+50%(-$100-$100)*10=
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