-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). Lucy will decide to ________ and she will definitely make this choice because it gives her a greater expected ________.
A) keep her current job; income
B) keep her current job; utility
C) quit her job and become a realtor; utility
D) quit her job and become a realtor; income

Question

-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). Lucy will decide to ________ and she will definitely make this choice because it gives her a greater expected ________.
A) keep her current job; income 
B) keep her current job; utility 
C) quit her job and become a realtor; utility 
D) quit her job and become a realtor; income

Quizplus · Accepted Answer

Lucy's expected utility from becoming a realtor is 0.4 * U(60,000) + 0.6 * U(25,000) = 0.4 * 10 + 0.6 * 5 = 8. Her expected utility from keeping her current job is U(30,000) = 6. Therefore, she will quit her job and become a realtor because it gives her a greater expected utility.

-Lucy Works as a College Instructor for a Fixed Annual