Firm A's isoprofit curves are flatter than those of firm B.Therefore,
A) firm A will be willing to pay a larger compensating differential than firm B.
B) firm B will be willing to pay a larger compensating differential than firm A.
C) both firms will pay the same compensating differential, but firm B will have higher profits than firm A.
D) risk is more costly to reduce in firm A than in firm B.

Question

Quizplus · Accepted Answer

Firm A's flatter isoprofit curve indicates that it is relatively more risk-averse than firm B. Therefore, to compensate their workers for taking on risky tasks, firm B will be willing to pay a larger compensating differential than firm A.

Firm A's Isoprofit Curves Are Flatter Than Those of Firm