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Use the graph below to answer the following question. Lee is offered a job as a salesperson in which there is a 50 percent chance that she will make $60000 a b. month and a 50 percent chance that she will make $20000. (15 points) What is Lees expected income from taking this job? What is Lees expected utility from taking this job? i. ii. iii. How much would another firm have to offer Lee with certainty to persuade her not to take the risky sales job? Incomse 0
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Answer #1

i) Expected income = 0.5 x 60000 + 0.5 x 20000 = $ 40000

ii) Expected utility = 0.5 x 18 + 0.5 x 10 = 14

iii) Certainty equivalent = income corresponding to expected utility (= 14)

Certainty equivalent = $ 40000

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