Suppose You Have an Option That Gives You a Lifetime

question 27

Multiple Choice

Suppose you have an option that gives you a lifetime income of $75,000 or a graduated income that begins at $30,000 and ends at $120,000 with the exact same present value. Which of the following would be true?

• A)Based on purely rational choice assumptions you should prefer the first choice.
• B)The first choice is preferred because no one likes low income years.
• C)The second choice is generally preferred because the steadily improving income brings some pleasure.
• D)There is no reason to believe either choice is preferred so you would be indifferent between the two options.

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Definitions:

Poisson Distribution

A probability theory used to predict the likelihood of various events happening over a specified period, assuming the events are rare and independent.

Customers Arrive

Describes the action or process of clients or consumers coming to a place of business or service, initiating the demand for transactions or services.

Manufacturing Plant

A facility where goods are produced or manufactured from raw materials through processes involving machinery, labor, and equipment.

Repair Process

A series of steps taken to restore damaged, broken, or failed equipment, devices, or materials to a good or working condition.