Scenario 17.5
Consider the following information:
Income to the firm from workers who sell door-to-door
Bad Luck Good Luck
Low Effort (e = 0) $5,000 $7,000
High Effort (e = 1) $7,000 $13,000
Cost of effort: c = $2500e
Probabilities: Bad luck = .75; Good luck = .25
-Refer to Scenario 17.5. If low effort is exerted, expected income is:
A) $5000.
B) $5500.
C) $6000.
D) $6500.
E) $7000.

Question

Quizplus · Accepted Answer

The expected income with low effort is calculated as: (0.75 * $5,000) + (0.25 * $7,000) = $5,500.

Scenario 17.5 Consider the Following Information