The table shows Jody's utility of wealth schedule. Jody is risk averse. Jody can take a teaching job that guarantees to pay her so that her yearend wealth is $20,000. Jody has also been offered a sales job that will pay her a commission. She has an 80 percent probability that her yearend wealth will be $25,000 and a 20 percent probability that it will be $15,000. Jody's expected wealth from the sales job is ________.

$20,000
$25,000
$17,000
$23,000

The table shows Jody's utility of wealth schedule. Jody is risk averse. Jody can take a teaching job that guarantees to pay her so that her yearend wealth is $20,000. Jody has also been offered a sales job that will pay her a commission. She has an 80 percent probability that her yearend wealth will be $25,000 and a 20 percent probability that it will be $15,000. Jody's expected utility from the sales job is _____. Jody will __________.

102 units; accept the sales job
$23,000; not accept the sales job because she is risk averse
102 units; not accept the sales job because she is risk averse
100 units; accept the sales job

The figure shows Evelyn's utility of wealth curve. Evelyn is offered a job selling real estate and she will have a 50 percent chance of making $10,000 a month and a 50 percent chance of making nothing. How much would another firm have to offer Evelyn with certainty to persuade her not to take the risky sales job?

$3,000 a month
any amount because Evelyn is risk averse
$10,000 a month
$5,000 a month

The figure shows Evelyn's utility of wealth curve. Evelyn is offered a job selling real estate and she will have a 50 percent chance of making $10,000 a month and a 50 percent chance of making nothing. Evelyn's friend Elaine is less risk averse. Elaine is offered the same job as Evelyn. Which of the following statements is true?

Elaine's total utility of wealth curve is more horizontal than Evelyn's.
Elaine's cost of risk is more than Evelyn's.
Elaine's cost of risk is less than Evelyn's.
Elaine's marginal utility of wealth decreases faster than Evelyn's.

A firm engaged in monopolistic competition has an advertising budget. Currently the marginal revenue product of advertising is $10,000, and the marginal cost of advertising is $7,500. You predict that the firm will _____________.

decrease the amount of advertising
increase or decrease the amount of advertising, depending on the competition
increase the amount of advertising
stop advertising

Due to moral hazard and adverse selection, banks set a loan limit and create ______________.

a horizontal demand curve
an excess supply of loans
an excess demand for loans
a higher interest rate than at equilibrium

Norma can choose Alternative A or Alternative B. Alternative A guarantees her $20,000. Alternative B gives her $35,000 with a 50 percent probability or $5,000 with a 50 percent probability. Norma is a risk-averse person. Norma prefers ______ and will choose ________.

B; B
B; A
A; A
A; B

Thelma can invest in two different projects. Each project requires an investment of $100,000. On each project, Thelma has a 50 percent chance of making either $100,000 or losing $50,000. If Thelma diversifies and invests $50,000 in each project, she has a ____ percent chance of ______________.

25; making $25,000
50; losing $50,000
25; losing $50,000
50; making $100,000

Thelma can invest in two different projects. Each project requires an investment of $100,000. On each project, Thelma has a 50 percent chance of making either $100,000 or losing $50,000. If Thelma diversifies and invests $50,000 in each project, her expected wealth _____________________.

is greater than if she did not diversify
increases only if the probability of success increases
is the same as if she did not diversify
is less than if she did not diversify

Thelma can invest in two different projects. Each project requires an investment of $100,000. On each project, Thelma has a 50 percent chance of making either $100,000 or losing $50,000. If Thelma is risk averse, she will choose to ________________.

not diversify because it increases her risk
not diversify because her expected utility is less under diversification
diversify because her expected utility is greater under diversification
diversify because her expected wealth is greater under diversification

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