Question

Chloe recently graduated from the university of chicago with a doctorate in economics. she has been offered a job in finance on wall street in new york with an uncertain income. there is an 80% probability that she will earn $100,000 and a 20% probability that she will earn $200,000. suppose chloe is offered another job at the federal reserve bank of new york with a certain income. all else equal, if she has a constant marginal utility of income, she will accept the second job offer if it pays more than: __________

a. $200,000.
b. $140,000.
c. $300,000.
d. $80,000.

Answer 1

Chloe should accept the second job offer if it pays more than $200,000 because of her constant marginal utility of income. Option a

Step-by-step explanation:

Chloe should accept the second job offer if it pays more than $200,000. This is because Chloe's utility-maximizing choice depends on her marginal utility of income, which is constant.

Since she has a higher probability of earning $100,000 (80%) compared to $200,000 (20%), the certain income of the second job offer can be considered equivalent to $100,000. Therefore, Chloe would choose the second job offer if it pays more than $200,000, which is higher than the equivalent income. Option a