Mark has two job offers when he graduates from college. mark 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. mark believes that he has a 50minus-50 chance of earning the bonus. if mark takes the offer that maximizes his expected utility and is risk neutral, which job offer will he choose?

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Business

Larry

14 June, 13:29

Mark has two job offers when he graduates from college. mark 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. mark believes that he has a 50minus-50 chance of earning the bonus. if mark takes the offer that maximizes his expected utility and is risk neutral, which job offer will he choose?

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Mistress · Answer 1

The first Job has a 100% chance for Mark to earn $50,000. While the second Job Has a possible 50% chance for Mark to earn $20,000 and another possible 50% chance for him to earn $80,000 ($20,000 + $60,000) If mark is risk neutral (Meaning that he is insensitive as regards to risk taking) and he wants to maximize his expected utility then Mark will go for the 100% chance of earning $50,000.