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A worker in an uncertain industry has u(w) = √ w, where w is wage. This year she has a 20% chance of earning $62,500 and an 80% chance of earning $160,000. 1. What is her expected utility? 2. Suppose she receives an outside offer for a salary s that is always paid. What level s makes her indifferent between taking the job and staying? 3. What is her risk premium, i.e., the difference E[w] − s? 4. Now the probabilities and wages are 20% for $50,000, 20% for $60,000, 57% for $100,000, and $250,000 with the remaining probability. What is her expected income? 5. Does she take an outside job that pays a guaranteed salary of $100,000 rather than accept these new probabilities? Why or why not?