-Consider the Spence Education Game depicted in Figure 16.3. In the figure, all payoffs are in thousands of dollars per month. Suppose that 70 percent of all workers are low- productivity (LP) workers and 30 percent are high-productivity (HP) workers. Using pre- employment testing, the firm has determined that there is a 60 percent probability of hiring a high-school (HS) graduate who is also a high-productivity worker and a 75 percent probability of hiring a college (C) graduate who is a high-productivity worker. What is the firm's conditional expected payoff from hiring a college graduate?
A) About $1,560
B) About $1,960
C) About $2,810
D) About $3,100
E) None of the above.

Question

-Consider the Spence Education Game depicted in Figure 16.3. In the figure, all payoffs are in thousands of dollars per month. Suppose that 70 percent of all workers are low- productivity (LP) workers and 30 percent are high-productivity (HP) workers. Using pre- employment testing, the firm has determined that there is a 60 percent probability of hiring a high-school (HS) graduate who is also a high-productivity worker and a 75 percent probability of hiring a college (C) graduate who is a high-productivity worker. What is the firm's conditional expected payoff from hiring a college graduate?
A) About $1,560 
B) About $1,960 
C) About $2,810 
D) About $3,100 
E) None of the above.

Quizplus · Accepted Answer

The conditional expected payoff from hiring a college graduate is:(0.75 * 3,100) + (0.25 * 1,560) = 2,810

-Consider the Spence Education Game Depicted in Figure 16