2. Workers in a certain factory are facing uncertain conditions regarding their employment. With 0.5 probability they can work 1,000 hours in a year and with 0.5 probability they can work 2,500 hours. The wage rate is $10/hour. Draw the utility functions below on a graph. Mark worker's employment possibilities. Explain whether the individuals are risk averse, risk neutral, or risk lover. a. U = √Income b. U = Income c. U = Income²

2. Workers in a certain factory are facing uncertain conditions regarding their employment. With 0.5 probability they can work 1,000 hours in a year and with 0.5 probability they can work 2,500 hours. The wage rate is $10/hour. Draw the utility functions below on a graph. Mark worker's employment possibilities. Explain whether the individuals are risk averse, risk neutral, or risk lover. a. U = √Income b. U = Income c. U = Income²

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Competing_risk neutral principals seek to attract workers. I he task the worker performs when hired generates an output that is either worth €S or €F, with S larger than F. The outcome is verifiable so that contracts take the form of wages (WS, WF), whereby Wg is paid when the output is worth €S and WF is paid otherwise. S The workers are risk averse and they differ in their ability. A worker's ability can be high (GOOD type) or low (BAD type). The variable Pt denotes the probability with which a worker with ability produces an output worth t €S. Therefore, a worker with ability t produces an output with an expected value Vt = (ptS+ (1 - pt)F). And the overall expected profits gathered by the principal who hires this type are Ent = - Vt ptws (1 — pt)wF. Finally, a worker with ability t has an expected utility given by EUt = Pt√√ws + (1 − Pt) √/wF The following table gives the values for Pt and Vt for each type. Value for Vt Good type Bad type Value for Pt 3/4 1/2 256 144
Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
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