X pays a yearly salary of $55,000, regardless of thestate of the economy. Job Y pays a yearly salary of$10,000 in a bad economy and $70,000 in a goodeconomy. The probability of a bad economy is 0.30.Which job would most people prefer?
A)Job Y because the expected payoff of $80,000 is greater than $55,000.
B)Job X because $55,000 exceeds the expected payoff of Job Y of $52,000.
C)Job X because $55,000 exceeds the expected payoff of Job Y by $6,000.
D)Job Y because the expected payoff of $70,000 is greater than $55,000.

Question

Quizplus · Accepted Answer

The expected payoff for Job Y is calculated as follows: (0.30 * $10,000) + (0.70 * $70,000) = $3,000 + $49,000 = $52,000. This is less than the steady salary of $55,000 offered by Job X, making Job X the preferred choice for most people due to its higher guaranteed income.

X Pays a Yearly Salary of $55,000, Regardless of Thestate