Brenda starts a business for $150,000 that gives her a 50% chance of losing and a 50% chance of gaining an expected annual return of $75,000.John is content with a job that pays him $75,000 per year with near certainty;there is only about a 1% chance of losing his job each year.Suppose risk is on the horizontal axis and return on the vertical axis,Brenda's indifference curve for risk and return:
A)is flatter than John's.
B)is steeper than John's.
C)has the same slope as John's.
D)is horizontal.

Question

Quizplus · Accepted Answer

Brenda's indifference curve is flatter than John's because she is willing to tolerate more risk for a higher potential return. John's indifference curve is steeper because he is content with a lower return and wants to avoid any risk. Therefore, the best choice would depend on the individual's risk tolerance and preference for return.

Brenda Starts a Business for $150,000 That Gives Her a 50