Question
Suppose that Alejandra's utility function for weekly salary and risk is given by U = (Salary) 1/2 - 3r. Alejandra is currently working in a
Suppose that Alejandra's utility function for weekly salary and risk is given by U = (Salary) 1/2 - 3r. Alejandra is currently working in a job that pays $900 per week and exposes her to risk level of 4. Assume that she is maximizing utility. Assume now that there is a government regulation requiring that Alejandra's job must be made safer. The end result is that the job now has a risk factor of 2. However, Alejandra's weekly salary is reduced to $500. Use indifference curves and a single isoprofit to illustrate where was consuming when she was free to select her risk and salary and where she is under the government regulation. A properly labeled sketch is fine.
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