Suppose that before 9/11, the situation was the one indicated by point A; that i

Question

Suppose that before 9/11, the situation was the one indicated by point A; that is, there were 55 million visitors per year, and the probability of intercepting any particular terrorist at customer and immigration was 10%. Again, suppose the first bill that is introduced mandates that security be doubled so that the probability of catching a terrorist at the border is increased from 10% to 20%, and that these measures do not change the position of the blue curve. The opportunity cost of this increase in security is: 15 million visitors per year 20 million visitors per year 40 million visitors per year 10 million visitors per year 35 milion visitors per year

Explanation / Answer

Moving from 10% to 20% probability of catching terrorists will reduce tourism from 55 million to 40 million visitors.

Thus, opportunity cost of the increase in security will be: 55-40 = 15 million visitors.

Thus, correct option is (a) 15 million visitors

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