SOLVED

21) Dana wants to try working as an independent contractor this summer. She has a 50 percent chance that she will make $10,000 and 50 percent chance that she will make nothing. What’s Dana’s expected income from taking this job? A) $10,000 B) $7,000 C) $5,000 D) zero 22) Adriana wants to try working as an independent contractor this summer. She has a 50 percent chance that she will make $9,000 and 50 percent chance that she will make nothing. What’s Adriana’s expected income? A) $4,000 B) $4,500 C) $2,000 D) $3,000 23) Joe is contemplating a job where, with probability 0.6, he will make $100,000 and with probability 0.4 he will make $30,000. What is Joe’s expected income from taking the job? A) $12,000 B) $60,000 C) $72,000 D) $90,000 24) You took a job as a salesperson in a insurance company with the knowledge that you have 0.5 chance of making $2,000 a month or $3,000 a month. How much will you make each month? A) definitely $2,500 B) definitely $2,000 C) definitely $3,000 D) either $2,000 or $3,000 Â Income (dollars) Total utility 0 0 100 100 200 150 300 175 400 190 500 198 600 200 25) James has a utility of wealth schedule in the above table. He is offered a job selling video games at Games Galore. James’ compensation depends on how much he sells. In a poor sales period, a salesperson makes $100 per month. In a good sales period, a salesperson makes $600 per month. James is told by the manager that, in any given month, there is a 25 percent chance of a poor sales period and a 75 percent chance of a good sales period. What is James’ expected income from taking this job? A) $100 B) $350 C) $475 D) $600 26) James has a utility of wealth schedule in the above table. He is offered a job selling video games at Games Galore. James’ compensation depends on how much he sells. In a poor sales period, a salesperson makes $100 per month. In a good sales period, a salesperson makes $600 per month. James is told by the manager that, in any given month, there is a 25 percent chance of a poor sales period and a 75 percent chance of a good sales period. What is James’ expected utility from taking this job? A) 100 B) 150 C) 175 D) 200 27) Nancy’s utility of wealth curve is given in the above figure. Option A gives Nancy $100 for sure. Option B gives Nancy $50 half the time and $150 half the time. Nancy’s expected utility of option A A) is greater than the expected utility of option B. B) is the same as the expected utility of option B. C) is less than the expected utility of option B. D) could be either greater or less than the expected utility of option B. 28) Nancy’s utility of wealth curve is given in the above figure. She is faced with a risky proposition which yields an income of $50 one-third of the time, $100 one-third of the time, and $150 one-third of the time. Her expected utility is A) 100. B) 140. C) 150. D) 420. 29) Dana’s utility of wealth is 65 units at $3,000, 80 units at $5,000, and 95 units at $9,000. Starting from zero wealth, he must choose between options A and B. Option A gives him $5,000 for sure. Option B gives him $3,000 with probability 0.5 or $9,000 with probability 0.5. Dana will A) choose option A. B) choose option B. C) be indifferent between option A and option B because they have the same risk. D) be indifferent between option A and option B because they have the same expected utility. 30) Jessica must choose option A or option B. Option A gives her $10,000 for sure. Option B gives her $5,000 if a fair coin toss shows heads and $15,000 if it shows tails. If Jessica is risk averse her utility of wealth curve becomes A) flatter as her wealth increases and she will choose option A. B) flatter as her wealth increases and she will choose option B. C) steeper as her wealth increases and she will choose option A. D) steeper as her wealth increases and she will choose option B.