Mark has two job offers when he graduates from college. Mark views the offers as identical, except for the salary terms. The first offer is at a fixed annual salary of $40,000. The second offer is at a fixed salary of $20,000 plus a possible bonus of $40,000. Mark believes that he has a 50-50 chance of earning the bonus. If Mark takes the offer that maximizes his expected utility and is risk-loving, which job offer will he choose?
A. Mark will take the first offer.
B. Mark will take the second offer.
C. Mark is indifferent between the offers-both yield the same expected utility.
D. Indeterminate from the given information.
Answer: B
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A) two B) three C) four D) six
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A. tax distortion. B. transactions cost. C. shoe-leather cost. D. menu cost.