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:

Treasury Bills

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Hyperinflation

Economic situation characterized by soaring prices.

Soaring Prices

A situation where the prices of goods and services rise rapidly and to unusually high levels.

Economic Situation

The state of economic conditions within a region, country, or the globe, encompassing factors like growth rates, employment, inflation, and markets.