Question

Jim has a choice between two jobs. Job A would pay him $15 an hour with certainty, and the job B is commission based where he could earn $12, with a 50% probability and $18 with a 50% probability. Which job would he choose? a. Neither of the jobs b. Job A c. Job B d. He would choose to exit the labor market

Answer 1

Answer:

b. Job A

Explanation:

The calculation of choosing the job is given below;

Expected payoff for Job B is

= 0.50 × $12 + 0.50 × $18

= $6 + $9

= $15

And,

The Payoff from job A is $15 with certainty

Now we assume that Jim would be a risk-averse person that selects the thing i.e. sure

So he should choose Job A only

Hence, the correct option is b.