Micheal is a bus driver. He has a utility function $u(I) = \sqrt{I}$, where I is total labor income. Assume that with probability $\pi$, Micheal would get into an accident while working. So after he got paid $900, he needs to pay $500 for the lost. With probability $1 - \pi$, no accident happens, and he gets $900. What is the expected utility of Micheal working as a bus driver?
? 30 - 10$\pi$
? 30
? 30 - 20$\pi$
? 20
QUESTION 2
Indifference curves showing wage (W) and risk (R) combinations will be shown as:
? Downward Sloping
? Upward Sloping
? Constant
QUESTION 3
For a firm to maximize profits, a reduction in on-the-job risks must be accommodated by:
? a. a reduction in the firm's productive capacity.
? b. an increase in wages.
? c. a reduction in wages.
? d. a reduction in average holiday time for full-time staff.