Asked by Ebba Maria Stillman on Apr 28, 2024
Verified
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) Job A
B) Job B
C) Neither of the jobs
D) He would choose to exit the labor market
Commission Based
Pertains to a compensation method where individuals or entities earn a percentage of the sales they generate or deals they close.
Certainty
A situation or condition where there is no doubt or variability in the outcome or result.
Labor Market
A marketplace where workers find paying work, employers find willing workers, and wage rates are determined.
- Comprehend the process of making investment choices amidst ambiguity and the importance of risk premiums.
Verified Answer
BA
Baylee AblesMay 01, 2024
Final Answer :
A
Explanation :
The expected earnings from Job B are calculated as (0.5 * $12) + (0.5 * $18) = $15, which is the same as the certain pay from Job A. However, Job A offers certainty in earnings, which is typically preferred over uncertainty when the expected values are the same, due to risk aversion.
Learning Objectives
- Comprehend the process of making investment choices amidst ambiguity and the importance of risk premiums.