Answer:
C) $6.25 million
Explanation:
Compensating wage differentials are paid to workers so that they accept tasks that are considered dangerous or hazardous.
A worker’s utility function is:
Utility = f (w, risk of injury)
Dahlia's safe job utility function = f(60000, 0.0002)
Dahlia's riskier job utility function = f(65000, 0.001)
A 400% increase in risk will increase Dahlia's salary by $5,000,
When you are using the compensation differential approach, you can determine the value of a life by dividing the compensating differential by the increased chance of death.
($65,000 - $60,000) / (1/1000 - 1/5,000) = $5,000 / 0.0008 = $6,250,000
