Suppose you are on the job market search. Also, suppose that the average salary offer for college undergraduate students in the job market is KRW 50,000,000 with a standard deviation of 5,000,000 (following normal distribution). For simplicity, assume you will receive a job offer exactly once a week, and must decide either to accept it or to turn it down (in the hope of receiving a better offer later); that is, each job will only give you one week for your acceptance/rejection decision.

After taking the Operation Management course, you would like to determine an optimal strategy for accepting a job offer. In particular, you would like to set a “reservation level” in terms of salary, which is the minimum salary level that you will accept the job. Let’s assume all other non-financial aspects are ignored. If you set a very high reservation level, it is likely that you will eventually end up with a high paying job, but it may take a long time to receive such an offer. You feel that each week that goes by without a job costs you KRW 100,000 in terms of “job search costs”, including any psychic costs of being jobless. Search cost occurs in the beginning of each week.

a. Determine the optimal reservation salary level that maximizes your payoff net of the search cost. Specifically, obtain the optimal strategy via simulation. Consider until week 100, and simulate the job search process 500 times. Consider the reservation levels between KRW 50,000,000 to KRW 65,000,000 in the increments of 1,000,000 (i.e., KRW50,000,000, KRW51,000,000, KRW52,000,000,...).

b. How would the model and solution change if there is no search cost but there is a time-discount factor of 0.5%?

 

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Given the problem we need to conduct a simulation to find the optimal reservation salary This can be achieved using a programming language such as Pyt... View the full answer