Erik can work as a forest ranger, where the probability of being killed in a work-related accident is 1/6,000, or he can earn an additional $800 a year by working as a game warden, where the probability of being killed in a work-related accident is 3/6,000. Using the compensating differential approach and the above information, what is the value of Erik's life?
A) $1.6 million
B) $2.4 million
C) $3.2 million
D) $4.8 million

Question

Quizplus · Accepted Answer

The compensating differential approach suggests that the additional risk of being a game warden (2/6,000) is compensated by an additional $800 a year. Therefore, the value of Erik's life is calculated as $800 divided by the increase in the probability of death (2/6,000 or 1/3,000), which equals $2.4 million.

Erik Can Work as a Forest Ranger, Where the Probability