Individual Problems 19-6

You need to hire some new employees to staff your startup venture. You know that potential employees are distributed throughout the population as follows, but you can't distinguish among them:

Employee Value Probability

$55,000 0.1

$68,000 0.1

$81,000 0.1

$94,000 0.1

$107,000 0.1

$120,000 0.1

$133,000 0.1

$146,000 0.1

$159,000 0.1

$172,000 0.1

The expected value of hiring one employee is ____________________

Suppose you set the salary of the position equal to the expected value of an employee. Assume that employees will not work for a salary below their employee value.

The expected value of an employee who would apply for the position, at this salary, is _____________________

Given this adverse selection, your most reasonable salary offer (that ensures you do not lose money) is

A. $94,000

B. $55,000

C. $68,000

D. $81,000