A good salesperson can sell $200,000 worth of goods,while a poor one can sell only a smaller amount worth of goods.Job applicants know if they are good or bad,but the firm does not.A firm will offer job applicants a choice between a fixed salary of $20,000 or a 20% commission.Assume risk-neutral salespersons and no opportunistic behavior.Given that the firm wants to distinguish a prospective good salesperson from a poor one,what should be the sales amount of a poor salesperson?
A) more than $150,000
B) less than $100,000
C) more than $100,000
D) $100,000

Question

Quizplus · Accepted Answer

A poor salesperson would prefer the fixed salary if they expect to sell less than $100,000 worth of goods, as 20% of $100,000 is $20,000, which is the same as the fixed salary. Selling less than $100,000 would make the commission less attractive than the fixed salary, thus distinguishing them from a good salesperson who would prefer the commission.

A Good Salesperson Can Sell $200,000 Worth of Goods,while a Poor