Refer to the information provided in Figure 17.1 below to answer the question(s) that follow. Figure 17.1
-Refer to Figure 17.1. John has two job offers when he graduates from college. John views the offers as identical, except for the salary terms. The first offer is at a fixed annual salary of $50,000. The second offer is at a fixed salary of $20,000 plus a possible bonus of $60,000. John believes that he has a 50-50 chance of earning the bonus. If John takes the offer that maximizes his expected utility and is risk-averse, which job offer will he choose?
A) John will take the first offer.
B) John will take the second offer.
C) John is indifferent between the offers-both yield the same expected utility.
D) Indeterminate from the given information.

Question

Refer to the information provided in Figure 17.1 below to answer the question(s) that follow.  Figure 17.1
-Refer to Figure 17.1. John has two job offers when he graduates from college. John views the offers as identical, except for the salary terms. The first offer is at a fixed annual salary of $50,000. The second offer is at a fixed salary of $20,000 plus a possible bonus of $60,000. John believes that he has a 50-50 chance of earning the bonus. If John takes the offer that maximizes his expected utility and is risk-averse, which job offer will he choose?
A) John will take the first offer. 
B) John will take the second offer. 
C) John is indifferent between the offers-both yield the same expected utility. 
D) Indeterminate from the given information.

Quizplus · Accepted Answer

Risk-averse individuals prefer a certain outcome over a gamble with the same expected value. The first offer guarantees $50,000, while the second has an expected value of $50,000 ($20,000 guaranteed plus a 50% chance of an additional $60,000) but with risk involved. Therefore, a risk-averse individual like John would choose the first offer.

Refer to the Information Provided in Figure 17