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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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