-Bobby is offered a job as a salesperson in which there is a 50 percent chance that he will make $2,000 and a 50 percent chance that he will make $10,000. Bobby's utility of wealth curve is shown in the figure above. What is Bobby's expected utility from taking this job?
A) 40
B) 50
C) 60
D) 70

Question

-Bobby is offered a job as a salesperson in which there is a 50 percent chance that he will make $2,000 and a 50 percent chance that he will make $10,000. Bobby's utility of wealth curve is shown in the figure above. What is Bobby's expected utility from taking this job?
A) 40 
B) 50 
C) 60 
D) 70

Quizplus · Accepted Answer

Bobby's expected utility is calculated by taking the average of the utilities at $2,000 and $10,000. If the utility at $2,000 is 40 and at $10,000 is 80, then the expected utility is (0.5 * 40) + (0.5 * 80) = 60.

-Bobby Is Offered a Job as a Salesperson in Which