Problem 1

Advanced Tood Systems Corporation has two divisions: Manufacturing and Sales.

(Tood is an expensive semiconductor-based device that looks high-tech and

performs no useful function. These properties make toods very popular with

corporate executives.) In the tood industry, when a new worker is hired both he andhis supervisor are equally ignorant about his ability. There is no skill involved intood making and marketing; however, natural ability matters a great deal. An

individual assigned to marketing either sells 12 toods a year or he sells nothing.

Similarly, a production worker is either able to produce 12 toods a year or he is notable to produce any toods at all. It is known that:

- everybody capable of selling toods is capable of making them

- one out of four people can both sell and make toods

- two out of four people are capable of making toods

A probationary period under expensive managerial supervision is necessary in

order to learn the individual's type. The costs associated with the probationary

period in manufacturing are $10,000. In other words, at a cost of $10,000 the firm

can learn if a particular worker is capable of producing toods. In order to evaluate

the individual's marketing ability, a more expensive screening procedure is needed.

It costs $30,000 to find out if a person is able to sell toods. Currently, this firm is

hiring entry level workers only into manufacturing. Those who do not show

themselves as able toodmakers are dismissed after probation. Some of the abletoodmakers are retained in manufacturing, while others are given an opportunity todo probation in marketing. That is, they are screened for ability to sell toods, at acost of $30,000 to the company. Those who fail in marketing are sent back to the tood manufacturing. Can this policy be improved? Explain. Which of thefollowing options best describes your answer?

a. The firm will do better by hiring some of the workers directly into marketing. It

makes little sense to take an able tood maker from manufacturing and send him tocostly marketing probation knowing that he will fail there with probability .

b. The company will do better by firing workers who failed in marketing

c. The firm can improve its profits by hiring workers only into marketing, where

their ability to sell toods is tested, and then transferring some into manufacturing.

d. The firm is following the optimal screening strategy

Problem 2

Recently, Advanced Tood Systems Corporation implemented a new computerized sales monitoring system. As a result, screening costs for marketing abilities declined to $8000. Does the hiring policy need any changes due to the availability of cheaper screening in marketing? Explain. Which of the following options best describes your answer? Why?

a. The firm should test all new hires regarding their ability to sell toods, and those who can sell toods should be assigned to marketing or manufacturing. Nobody should be subjected to probation that only screens for ability to make toods.

b. If the firm needs to hire x and y new workers for marketing and production respectively, it should give only marketing screening to 4x individuals and only manufacturing screening to 2y.

c. The firm can improve its profits by hiring workers only into marketing and then transferring some of these who failed marketing probation into manufacturing probation.

d. The old probation system is optimal under new circumstances.