# Designing a Job Posting for Your Next Hire Question

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QUESTION 1
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You are a hiring manager, and you are designing a job
posting for your next hire. The contract that you offer
features:
1 year probationary period
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10 extra years (Offered conditional on good
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performance during probationary period)
Opt or Out
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The likelihood that a good candidate will get retained
after the probationary period is 80%, while the probability
that a bad candidate will get offered retention is 5%.
A good candidate has a per-year outside option of \$100’000;
a bad candidate has a per-year outside option of \$70’000.
Which of the following three options allows for an effective
screening of candidates?
Option 1
w1= \$120’000
w2=w3=…=w11=\$185’000
Option 2 n
w1= \$70’000
w2=w3=…=w11=\$120’000
Option 3
w1= \$120’000
w2=w3==w11=\$70’000
QUESTION 2
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Consider the same problem as Question 3.
Now suppose that the probability of retention for a good
candidate is
10%. Which
option would you
chose?1
Now suppose that the probability of retention for a good
candidate is 20%. Which option would you chose?2
QUESTION 3
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You are an hiring manager at an accounting firm. You
would like to hire a new employee to work with some very
large and important new clients that just had a merger and
acquisition transaction for the next 5 years. A CPA
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certification is not really required for this specific job, but you
think that offering to offer a salary premium for candidates
with such certification may help good candidates to signal
their quality.
The contract has the following structure
Salary for CPA-certified accountants: \$105’000
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Salary for non-CPA certified accountants: \$75’000
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The outside option at other firms is a salary of \$70’000
per year. The cost for the acquisition of a CPA certification is
\$15’000 for a good candidate, \$23’000 for a bad one.
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1. Will a bad worker get a CPA certification and apply for the
position?
2. Will a good worker get a CPA certification and apply for the
position?
3. Suppose now that you offer \$83000 for candidates without a
CPA certificate. Will a bad worker get a CPA certification and
apply for the
position?
QUESTION 1
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If a firm successfully engages in product innovation, resulting in
monopoly power for the new good/service, which of the following is
generally true?
The new market will generate surplus for the
innovating firm, but an inefficiently low level of
the good will be produced and consumed.
None of these is generally true.
The innovating firm will not be able to earn any producer
surplus from the production and sale of the new
product/service.
The new market will generate surplus for the innovating
firm, but an inefficiently high level of the good will
be produced and consumed.
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QUESTION 2
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If a firm successfully engages in product innovation, resulting in
monopoly power for the new good/service, which of the following is
generally true?
The new market will generate surplus for the innovating
firm, but an inefficiently high level of the good will
be produced and consumed.
The innovating firm will not be able to earn any producer
surplus from the production and sale of the new
product/service.
None of these is generally true.
The new market will generate surplus for the innovating
firm, but an inefficiently low level of the good will
be produced and consumed.
QUESTION 3
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Which of the following is not a metric used to assess the degree
of market power in an industry?
Concentratio
n Ratio
HHI
Profit per
unit
Lerner Index
QUESTION 4
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True or False: In recent years, the DOJ and FTC have
increasingly cited negative impacts on innovation in their challenges to
mergers and acquisitions.
True
False
QUESTION 5
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Which of the following economists’ writings best exemplifies the
perspective of the DOJ and FTC that market concentration is bad for
innovation?
All of the these support
the claim.
Kenneth Arrow
Philippe Aghion
Joseph Schumpeter
QUESTION 6
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Which of the following is NOT an argument suggesting the
advantages of competitive markets over monopoly markets for
incentivizing innovation is overstated?
If firms race to secure patents for the same innovation,
too much competition can reduce the incentive to
exert innovation effort.
The existence of a monopolist’s existing profits provide
an incentive for the firm to engage in future
innovation.
Competitive firms may actually be earning profits if they
produce differentiated products, reducing their
incentives to innovate.
The incentive for a monopolist to engage in product
innovation would increase if the innovation does
not fully replace existing products.
QUESTION 7
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Which of the following is a necessary condition for a firm to be
able to bundle a new product with an existing one?
the firm must operate in a perfectly competitive
market.
the two goods must be substitute products.
consumers’ willingness to pay for the two products
are inversely related.
consumers must have a higher willingness to pay for
the new product than for the older existing
product.
QUESTION 8
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According to Aghion et al. (2005), the relationship between
degree of competition and incentives to innovate can best be
characterized by:
An inverted Ushape.
An inverse
relationshi
p.
A direct
relationshi
p.
A U-shape.
QUESTION 9
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Which of the following best captures Aghion et al.’s (2005)
explanation for why more competition may reduce incentives to
innovate?
Lagging firms face reduced profits from
innovating to catch up with leaders.
None of these.
Lagging firms will want to increase innovation to
catch up with leaders.
Neck-and-neck firms will want to break away and
become innovation leaders.

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