Pam has a job at a jewelry kiosk in a mall. Pam doesn't like to work hard, and it costs her $100 to do so. Pam's employer cannot observe whether Pam works hard. If Pam works hard, there is a 75% probability that jewelry profits will equal $400 a day and a 25% probability that jewelry profits will equal $100 a day. Suppose Pam is paid $200 if jewelry profits are $400 a day and $50 if jewelry profits are $100 a day. What is Pam's expected pay for working hard?
A) $250
B) $100
C) $225.75
D) $162.50

Question

Quizplus · Accepted Answer

Pam's expected pay for working hard is calculated as follows: (0.75 * $200) + (0.25 * $50) = $150 + $12.50 = $162.50.

Pam Has a Job at a Jewelry Kiosk in a Mall