A shoe salesman working on commission must decide whether to work hard or shirk.Working hard would increase the probability of a sale from 20% to 70% but the effort would cost him $5.If the commission on a typical pair of shoes was $12,would he decide to work hard?

Question

​A shoe salesman working on commission must decide whether to work hard or shirk.Working hard would increase the probability of a sale from 20% to 70% but the effort would cost him $5.If the commission on a typical pair of shoes was $12,would he decide to work hard?

Quizplus · Accepted Answer

The expected commission with shirking is: 
0.2($12) = $2.40

The expected commission with working hard is: 
0.7($12) - $5 = $1.40

Therefore, the expected commission with shirking is higher than with working hard. However, if the salesman works hard, there is a chance of making a sale, and the commission ($12) would be higher than the expected commission with shirking. So, the best choice for the salesman is to work hard.

​A Shoe Salesman Working on Commission Must Decide Whether to Work

A Shoe Salesman Working on Commission Must Decide Whether to Work