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Compensating Wage Differentials: Consider a competitive labor market that has four different jobs that vary by their wage and risk level. The table below describes

  1. Compensating Wage Differentials:Consider a competitive labor market that has four different jobs that vary by their wage and risk level. The table below describes each of the four jobs.

Job

Risk (r)

Wage (w)

A

1 5

$3

B

1 4

$12

C

1 3

$23

D

1

$25

All workers are equally productive, but workers vary in their preferences. Consider a worker who values his wage and the risk level according to the utility function:

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