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Homework answers / question archive / Leah Johnson, director of Legal Services of Brookline, wants to increases capacity to provide free legal advice but must decide whether t do so by hiring another full time lawyer or by using part time lawyers
Leah Johnson, director of Legal Services of Brookline, wants to increases capacity to provide free legal advice but must decide whether t do so by hiring another full time lawyer or by using part time lawyers. The table below shows the expected costs of the two options for three possible demand levels.
| States of Nature | |||
|---|---|---|---|
| Alternatives | Low Demand | Medium Demand | High Demand |
| Hire full-time | $300 | $500 | $700 |
| Hire part-time | $0 | $350 | $1,000 |
| Probabilities | .2 | .5 | .3 |
Using expected value, what should Ms. Johnson do?
Ms. Johnson should hire the nurses with having lesser cost to the company that, in turn, increases the expected value.
Expected cost of hiring full-time lawyers would be:
=(.2)(300)+(.5)(500)+(.3)(700)=$60+$250+$210=$520=(.2)(300)+(.5)(500)+(.3)(700)=$60+$250+$210=$520
And, expected cost of hiring part-time lawyers would be:
=(.2)(0)+(.5)(350)+(.3)(1000)=$0+$175+$300=$475=(.2)(0)+(.5)(350)+(.3)(1000)=$0+$175+$300=$475
The expected cost of full-time and half-time lawyer suggests that Ms. Johnson should hire the half-time lawyer as it reduces the expected cost, and that will increase the expected value.
