2. Bloomington Mayor-elect Hamilton is indifferent about whether to keep as100,0
ID: 3205646 • Letter: 2
Question
2. Bloomington Mayor-elect Hamilton is indifferent about whether to keep as100,000 property tax revenue surplus or use it to create a tax abatement district on 2 street (past Route 37) in order to attract new to Bloomington, If the business those new businesses that locate there are successful, $7o0,000 in additional tax revenues will be collected by the city. f new businesses fail, the city coffers will lose the entire $100,000 surplus and no new taxes will be collected. Prior to making his decision, Hamilton determines that tax abatement districts are successful 15% of the time. a. What is Mayor-elect Hamilton's utility of$100,000? 00,000 3. Hamilton is also indifferent between keeping the s100,000 surplus and giving bonuses to city employees. Hamilton believes that bonuses paid to public sector employees result in a 20% increase their productivity other would save the city an additional $250,000 after the are paid) when they are effective. Studies on bonuses given to employees of similar sized cities show that the hoped for productivity gains occur 60% of the time. In 2 in words the bonuses paid are only effective 60% of the time. NOTE: You to know the answer to Question order to answer Question 3 a. what is Mayor-elect Hamilton's utility of $250,000?Explanation / Answer
2) a)
Profit of success = 700,000
loss of failure = 100,000
probability of sucess or win = 0.15
hencce total utility
= 0.15* 700000 - 0.85 * 100000
= 20,000
From the answer it is evident that instead of taking the risk of keeping new business he could use it for existing.
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3) a)
For the existing
Probability that bonus paid to public sector is effective by = 0.6
Profits in this case after the bonuses are paid = 250,000 (If bonus paid effectively works)
Now in this case,
Net profit = 0.6 * 250,000 = 150,000
Among the decisions to invest in new business, keep it himself and invest in public sector of his own net profits yeids are more for investing in public sector.
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