Consider a competitive economy that has four different jobs that vary by their wage and risk level. The table below describes each of the four jobs.Job Risk ( r ) Wage ( w)A 1/5 $ 3B 1/4 $12C 1/3 $23D 1/2 $25All workers are equally productive, but workers vary in their preferences. Consider a worker who values his wage and the risk level according to the following utility function:u(w, r) = w + 1/r2Where does the worker choose to work? Suppose the government regulated the workplace and required all jobs to have a risk factor of 1/5 (that is, all jobs must become A jobs). What wage would the worker now need to earn in the A job to be equally happy following the regulation?
Consider a competitive economy that has four different jobs that vary by their wage and risk level. The table below describes each of the four jobs.
Job Risk ( r ) Wage ( w)
A 1/5 $ 3
B 1/4 $12
C 1/3 $23
D 1/2 $25
All workers are equally productive, but workers vary in their preferences. Consider a worker who values his wage and the risk level according to the following utility function:
u(w, r) = w + 1/r2
Where does the worker choose to work? Suppose the government regulated the workplace and required all jobs to have a risk factor of 1/5 (that is, all jobs must become A jobs). What wage would the worker now need to earn in the A job to be equally happy following the regulation?
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