Assume that Pam's utility function is given by u = 40I  0.001I2, where I is income. Pam has the choice of legal work that pays IL = $10,000 per year or illegal work that pays II = $20,000 per year. There is a 30% chance that, if Pam chooses illegal work, she will be caught and her income will be reduced to 0 per year. Find an expression for Pam's expected income from illegal activity. 

Answer rating: 100% (QA)

To find Pams expected income from illegal activity we need to consider the probabilities a... View the full answer