Question

Suppose that the salary range for recent college graduates with a bachelor's degree in economics is $30,000 to $50,000, with 25 percent of jobs offering $30,000 per year, 50 percent offering $40,000 per year and 25 percent offering $50,000 per year and that in all other respects, the jobs are equally satisfying. Assume that in this market, a job offer remains open for only a short time so that continuing to search requires an applicant to reject any current job offer. Moe has just received a job offer that pays $40,000 per year. Moe should:Select one:a. reject the offer regardless of his preference for risk.b. accept the offer if he is risk averse.c. reject the offer if he is risk averse.d. only accept the offer if he is risk-neutral.

Answer 1

Answer:

The answer is B.

Explanation:

To be risk averse means not wanting to take risk or not chosing higher returns with unknown risks. but rather going for lower returns with known risks.

Moe receives a job offer of $40,000.

Now let's calculate the expected returns using the percentage given and the corresponding amount.

25perecent of $30,000 + 50percent of $40,000 + 25percent of $50,000

$7,500 + $20,000 + $12,500

$40,000

The expected value from the data and the salary given are the same, so he should accept the job if he is risk averse.