The figure shows Lee’s utility of wealth curve.
Lee is offered a job as a salesperson in which there is a 50 percent chance that she will make $4,000 a month and a 50 percent chance that she will make nothing.
a. What is Lee’s expected income from taking this job?
b. What is Lee’s expected utility from taking this job?
c. How much would another firm have to offer Lee with certainty to persuade her not to take the risky sales job?
d. What is Lee’s cost of risk?