-Al Works as a Sales Clerk at a Department Store

question 143

Essay

-Al works as a sales clerk at a department store for a fixed salary of $2,500 per month. He is offered a job as a salesperson at a car dealership in which there is a 50 percent chance that he will make $5,000 a month and a 50 percent chance that he will make only $1,000 a month. The figure above Al's utility of wealth curve:
a) What is Al's expected income from the offered job?
b) What is Al's expected utility from the offered job?
c) Will Al accept the offer? Why or why not?
d) What is the minimum fixed salary for which Al will continue to work for the department store and not accept the dealership's offer?

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Definitions:

Probability

A measure of the likelihood or chance that a particular event will occur, expressed as a number between 0 and 1.

Sample Mean

The average of all observations or data points in a sample, used as an estimate of the population mean.

Population Mean

The average of all observations or values in a total population, representing the central value around which the figures in the population distribute.

Sample Statistic s

Calculated value (such as mean or standard deviation) from a sample of data, used to infer characteristics of the entire population.