Suppose that the salary range for recent college graduates with a bachelor's degree in economics is $30,000 to $50,000, with 25 percent of jobs offering $30,000 per year, 50 percent offering $40,000 per year and 25 percent offering $50,000 per year and that in all other respects, the jobs are equally satisfying. Assume that in this market, a job offer remains open for only a short time so that continuing to search requires an applicant to reject any current job offer. Moe has just received a job offer that pays $40,000 per year. Moe should:
A)reject the offer regardless of his preference for risk.
B)accept the offer if he is risk averse.
C)reject the offer if he is risk averse.
D)only accept the offer if he is risk-neutral.

Question

Quizplus · Accepted Answer

The expected starting salary for a college graduate with a bachelor's degree in economics is $40,000 = (0.25)($30,000)+ (0.50)($40,000)+ (0.25)($50,000). Thus, if Moe has a job offer for $40,000, then the expected value of searching for another job is zero, implying that Moe should accept the offer (and not search)if he is risk-averse.

Suppose That the Salary Range for Recent College Graduates with a Bachelor's