Suppose a firm is considering installing cameras and using spy software on the computers at the office to monitor its workers in addition to hiring additional supervisors. The firm estimates that increasing the probability of catching workers who shirk by .01 costs the company $10,000 per year. For example, in the problem above when going from 0.30 to 0.31, it would cost the firm $10,000 per year. How much would the firm have to spend in order to impose shirking costs of $75,000 on its average worker? Show your work. Assume that
- the firm’s work force is on average 20 years away from retiring
- that the firm’s workers could find similar work in other companies earning $40,000
- that the company currently pays its workers $42,000
- and that the current probability of catching workers who shirk is 0.30,