Further questions Now, imagine that the city of San Francisco decides to crack d

Question

Further questions Now, imagine that the city of San Francisco decides to crack down on motorists who park on sidewalks by increasing the number of officers issuing parking tickets (thus, raising the probability of a ticket). If the cost of a ticket is $100 and the opportunity cost for the average driver of searching for parking is $18, which of the following probabilities would make the average person stop parking illegally? Assume that people will not park illegally if the expected value of doing so is negative. Check all that apply. 23% 15% 16% 28% Alternatively, the city could hold the number of officers constant and discourage parking violations by raising the fine for illegal parking. Suppose the average probability of getting caught for parking illegally is currently 15% citywide and the average opportunity cost of parking is, again, $18. The fine that would make the average person indifferent between searching for parking and parking illegally is, assuming that people will not park illegally if the expected value of doing so is negative.

Explanation / Answer

Part 1

People will not park illegally if, the average opportunity cost of finding a parking space < (the ticket cost x probability of getting caught for parking illegally).

So, we should have: 18 < 100p, where p = probability of getting caught for parking illegally.

Or, p > 0.18. ANSWER 23% and 28%    

Part 2

Here, we should have: 18 C x p, where p = 0.15 (given) and C = the fine that would make the average person indifferent to searching for parking space and illegal parking.

So, C 18/0.15 = 120.

Thus, the fine that would make the average person indifferent to searching for parking space and illegal parking is $120 or above ANSWER

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