-Lucy Works as a College Instructor for a Fixed Annual

question 23

Multiple Choice

-Lucy works as a college instructor for a fixed annual salary of $30,000. She is considering quitting this job and becoming a real estate broker. Lucy believes that as a realtor she has a 40 percent chance to make $60,000 per year and a 60 percent chance to make $25,000 a year. The figure above shows Lucy's total utility of wealth curve (U) . Of the following, what minimum salary raise (if any) should Lucy's current employer offer her to persuade her to stay?

• A) No raise is necessary as Lucy is better off with her current salary than with her expected income as a realtor.
• B) $8,000
• C) $5,000
• D) $3,000

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Definitions:

Marginal Cost

The expense addition due to the manufacture of one more product or service unit.

Average Variable Cost

The total variable costs (e.g., materials, labor) divided by the quantity of output produced, representing the variable cost per unit.

Marginal Cost

The hike in cost associated with the creation of an extra unit of a good or service.

Average Total Cost

The total cost of production divided by the quantity produced, representing the average cost per unit of output.