Mark Has Two Job Offers When He Graduates from College

question 89

Multiple Choice

Mark has two job offers when he graduates from college. Mark 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. Mark believes that he has a 50-50 chance of earning the bonus. If Mark takes the offer that maximizes his expected utility and is risk-neutral, which job offer will he choose?

• A) Mark will take the first offer.
• B) Mark will take the second offer.
• C) Mark is indifferent between the offers-both yield the same expected utility.
• D) Indeterminate from the given information.

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Definitions:

Computerized Axial Tomography

Also known as a CT scan, a diagnostic medical test that uses computer-processed combinations of multiple X-ray measurements taken from different angles to produce images of specific areas of the scanned object, allowing the user to see inside without cutting.

X-rays

A form of electromagnetic radiation with wavelengths shorter than visible light, used in medical imaging to view inside the body.

Actuarial Approach

A method that employs statistical models to assess risks and predict outcomes, commonly used in fields like insurance, finance, and criminal justice for forecasting.

Intuition

The ability to understand or know something immediately without the need for conscious reasoning, often considered as a 'gut feeling.'