John has two job offers when he graduates from college. John views the offers as identical, except for the salary terms. The first offer is at a fixed annual salary of $50,000. The second offer is at a fixed salary of $20,000 plus a possible bonus of $60,000. John believes that he has a 50-50 chance of earning the bonus. What is John's expected utility for each job offer?

A. Expected utility of 200 for the first offer and expected utility of 164 for the second offer

B. Expected utility of 100 for the first offer and expected utility of 164 for the second offer

C. Expected utility of 200 for the first offer and expected utility of 110 for the second offer

D. Expected utility of 200 for the first offer and expected utility of 218 for the second offer

If John takes the offer that maximizes his expected utility and is risk-averse, which job offer will he choose?

A. John will take the first offer.

B. John will take the second offer.

C. John is indifferent between the offers - both yield the same expected utility.

D. Indeterminate from the given information

 

Transcribed Image Text:

Utility 0 218 210 200 180 110 20,000 40,000 Income ($) I T 1 60,000 I 1 80,000 Utility 0 218 210 200 180 110 20,000 40,000 Income ($) I T 1 60,000 I 1 80,000

Answer rating: 100% (QA)

Ans The question is solved given John maximizes his total utilit... View the full answer