# What important consideration is this person omitted?

Consider a worker with a utility function: ??=?????2 where ?? is the wage and ?? is the risk of fa Show more Consider a worker with a utility function: ??=?????2 where ?? is the wage and ?? is the risk of fatality per 100000 workers per year. a) On the graph below draw the two indifference curves that represent this workers preference for wage versus risk at utility levels: ??1=10 and ??2=15. Graph: wage = y risk of fatality = x b) Which of the following two offers would this worker prefer: (?? = \$20?? = 1) or (??=\$25??=2)? c) Assume this worker is currently employed at a job with ??=\$30 and ??=2. By how much would this worker have to be compensated in order to be indifferent between his current job and a job where the risk is: ??=4? (hint: it may be helpful to calculate the workers utility) d) Someone suggests to you that the theory of compensating wage differentials is untrue because workers in more dangerous occupations earn on average less than workers in safer occupations. What important consideration is this person omitted? Explain briefly (2-3 sentences). Show less

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