Betsy''s utility function , Managerial Economics

Suppose that Betsy's utility function is given by the equation U=Y0.3 where Y is calculated in thousands of dollars. Betsy's present job pays her $20,000 (Y=20) per year and she can earn this amount next year with certainty. Betsy is offered a disimilar job but in this new job, Betsy has a 50% chance of earning $36,000 (Y=36) and a 50% chance of earning only $15,000 (Y=15).

 

a) Should Betsy take the latest job?

 

b) Does your answer change if Betsy's utility function is U=Y0.9? Why?

 

c) Does your answer change if Betsy's utility function is U = Y1.25? Why?

 

Posted Date: 3/26/2013 1:34:55 AM | Location : United States







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