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Expected Payoff of Shirker or a Hard Worker

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Suppose you have hired a new worker, unfortunately you do not know if the worker is a shirker or a hard worker. Suppose working hard raises the probability of making a sale from 40% to 80% (thus raises the probability of making a commission C by the same percentage). If the cost of working harder is $150,what commission C should you offer the worker to provide an incentive to work hard.

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Solution Summary

Solution calculates the minimum commission to provide an incentive for hard work through expected payoff to a new employee. 40 words.