Suppose an employer has monitoring devices established so that the probability of an employee being caught while shirking is 0.2. If the gain to the employee from shirking is $1,000, how large a bond will deter shirking?
What will be an ideal response?
B = 1000/0.2 = $5,000. With a $5,000 bond and a 20% chance of being caught, the employee's gain from shirking just equals the expected cost of shirking.
You might also like to view...
Suppose there are three houses in a neighborhood. The residents are considering installing street lights and are trying to determine how many lights need to be installed
Each resident's willingness to pay for street lights is given in the table below. Number of Street Lights House 1 House 2 House 3 1 $300 $400 $200 2 $280 $360 $160 3 $240 $300 $120 4 $180 $220 $100 5 $80 $100 $10 If the cost of installing one light is $500, how many lights will be installed? A) 1 B) 2 C) 4 D) 5
The above table gives the initial balance sheet for Mini Bank. Mini Bank's actual reserve ratio equals ________
A) 25 percent B) 12.5 percent C) 33.3 percent D) 20 percent