U.S. Trucking pays its drivers $40,000 per year, while American Trucking pays it
ID: 1192314 • Letter: U
Question
U.S. Trucking pays its drivers $40,000 per year, while American Trucking pays its drivers $38,000 per year. For both firms, truck drivers average 240,000 miles per year. Truck driving jobs are the same regardless of which firm one works for, except that U.S. Trucking gives each of its trucks a safety inspection every 36,000 miles and American Trucking gives each of its trucks a safety inspection every 36,000 miles. The differnce in safety inspection rates results in a differnt rate of fatal accidents between the two companies. In particular, one driver for U.s Trucking dies in an accident every 12 million miles while one driver for American Trucking dies in an accident every 15 million miles. What is the value of a truckers life implied by the compensating differential between the two firms?
This question does not provide the number of workers employed by the firms. In the textbook solutions, the solution begins with "To make things simpler, lets assume each company requires 60 million miles per year." I understand the rest of how to calculate the value of life implied by the compensating wage differentials, but I am wondering how or why the textbook solution chose 60 million. I tried it at 30 million, and of course the value of life came out to $250,000, rather than 500,000, which would also be correct based on the assumption. Does it matter if I assume 125 employees (30mil/240,000) or 250 employees (60 mil/240,000) ? How would I know to pick such a large number 60 million?) I think that is my main question.
Explanation / Answer
The textbook solution arbitrarily picked 60 as the number of miles each company requires per year. One might as well choose 30, instead of 60. The number picked should
1. not make calculations cumbersome.
2. result in a realistic answer.
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