Assume that Erica?s prefe

Assume that Erica?s prefe

Assume that Erica?s preferences for wages and risk are given by the utility U =W x e-12R. Her friend Rambo?s utility function is U = W x e-3R. Assume that Wrepresents the hourly wage and that there is a range of job types within aparticular firm, each having a different level of risk R. Erica?s utility functionimplies that the slope of her indifference curve with respect to R (the MRS) is12W. Rambo?s MRS is 3W. The isoprofit for the firm is given as W = 60 x R(do not worry that the isoprofit is a straight line rather than a strictly concavecurve).Determine Erica?s choice of wage and risk (algebraically). Determine Rambo?schoice of wage and risk. Sketch a diagram showing these choices.

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