02 Jun ECO 102 Exam 6 1) Consider the following game. You roll a six-sided d
Question
ECO 102 Exam 6
1) Consider the following game. You roll a six-sided die and each time you roll a 6, you get $30. For all other outcomes you pay $6. What is the expected value of the game?
A) -$6
B) $0
C) $6
D) $30
Refer to the information in Figure 17.1 below to answer the questions that follow.
Figure 17.1
2) Refer to Figure 17.1. John has two job offers when he graduates from college. John views the offers as identical, except for the salary terms. The first offer is at a fixed annual salary of $50,000. The second offer is at a fixed salary of $20,000 plus a possible bonus of $60,000. John believes that he has a 50-50 chance of earning the bonus. What is the expected value of John’s income for each job offer?
A) $50,000 for the first offer and $80,000 for the second offer
B) $50,000 for the first offer and $50,000 for the second offer
C) $50,000 for the first offer and $30,000 for the second offer
D) $25,000 for the first offer and $50,000 for the second offer
3) Refer to Figure 17.1. John has two job offers when he graduates from college. John views the offers as identical, except for the salary terms. The first offer is at a fixed annual salary of $50,000. The second offer is at a fixed salary of $20,000 plus a possible bonus of $60,000. John believes that he has a 50-50 chance of earning the bonus. What is John’s expected utility for each job offer?
A) expected utility of 200 for the first offer and expected utility of 218 for the second offer
B) expected utility of 200 for the first offer and expected utility of 110 for the second offer
C) expected utility of 200 for the first offer and expected utility of 164 for the second offer
D) expected utility of 100 for the first offer and expected utility of 164 for the second offer
4) Refer to Figure 17.1. Suppose John’s utility from income is given in the figure. From this we would say that John is ________.
A) risk neutral
B) risk averse
C) risk loving
D) a risk taker
5) Mark has two job offers when he graduates from college. Mark views the offers as identical, except for the salary terms. The first offer is at a fixed annual salary of $40,000. The second offer is at a fixed salary of $20,000 plus a possible bonus of $40,000. Mark believes that he has a 50-50 chance of earning the bonus. If Mark takes the offer that maximizes his expected utility
and is risk loving, which job offer will he choose?
A) Mark will take the first offer.
B) Mark will take the second offer.
C) Mark is indifferent between the offers — both yield the same expected utility.
D) Indeterminate from the given information.
Refer to the information provided in Figure 17.2 below to answer the questions that follow.
Figure 17.2
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