Question
Suppose instead that the four different jobs now have the following levels of risk and wage. Job Risk (r) Wage (w) A 0.34 $8.5 B
Suppose instead that the four different jobs now have the following levels of risk and wage.
Job | Risk (r) | Wage (w) |
A | 0.34 | $8.5 |
B | 0.4 | $21.3 |
C | 0.52 | $22.3 |
D | 0.7 | $23 |
First, find the utility for each job of the worker with the following utility:
u(w,r)=w+1r2
Note first which job this worker takes (the one that would provide her with the highest utility) given the risks and wage given above.
Now, the government imposes a regulation that requires every job to have a maximum risk of 0.34, and because of this jobs B, C, and D are no longer available. Only Job A is available now, and thus the worker takes that job.
What wage would the worker now need to earn in Job A to be equally happy as before the regulation?
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