You are considering a sales job that pays you on a commission basis or a salarie

Question

You are considering a sales job that pays you on a commission basis or a salaried position that pays you $50,000 per year.

Historical data suggests the following probability distribution for your commission income.

Which job has the higher expected income?

COMMISSION . . . . PROBABILITY OF OCCURRENCE
$15,000 ...............0.15
$35,000 ...............0.20
$48,000 ...............0.35
$67,000 ...............0.22
$80,000 ...............0.08

Which is the best choice . . . .
A). The salary of $50,0000 is less than the expected commission of $50,000.

B). The salary of $50,000 is greater than the expected commission of $48,400.

C). The salary of $50,0000 is less than the expected commission of $55,190.

B). The salary of $50,000 is greater than the expected commission of $47,190.

Explanation / Answer

commission income is
$15,000 *0.15 +$35,000 *0.20 +$48,000 *0.35 +$67,000*0.22+ $80,000 *0.08=47,190

Therefore your answer is
D). The salary of $50,000 is greater than the expected commission of $47,190.

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