What is the company expected payoff

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Reference no: EM133440734

ASSIGNMENT:

A company is trying to determine if a job applicant is high type or low type. In the pool of applicants, equally many are high type and low type. The company can give the applicant an interview. If the applicant is high type, they will do well in the interview with probability 3/5 and do badly with probability 2/5 . If the applicant is low type, they will do well in the interview with probability 2/5 and do badly with probability 3/5. Suppose the company gets a payoff of $200, 000 from hiring a high type applicant, a payoff of -$100, 000 from hiring a low type applicant, and a payoff of $0 from not hiring the applicant. The company is Bayesian and maximizes their expected payoff.

(a) If the company does not interview the applicant, would they hire the applicant?

(b) What is the company's expected payoff if they do not interview the applicant?

(d) If the company interviews the applicant and the applicant does badly in the interview, would they hire the applicant?

(e) What is the company's expected payoff if they interview the applicant?

(f) Suppose interviewing is costly. How much would the company be willing to pay to interview the applicant?

Reference no: EM133440734

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