Author Question: Jim's Hardware Supply has theft insurance. Jim also has an alarm system. The alarm system has just ... (Read 94 times)

charchew · **on:** Jul 1, 2018

Jim's Hardware Supply has theft insurance. Jim also has an alarm system. The alarm system has just recently malfunctioned. If Jim has the alarm system repaired, it will cost him 100. The probability of a theft occurring is p = 0.0001.

If a theft occurs and there is no alarm system, the value of stolen materials will be 125,000. However, Jim's insurance will compensate him fully for the loss. No thefts will occur if the alarm system is in place. What is the expected cost to Jim of repairing the alarm system? What is the expected cost to society of not repairing the alarm system?

Question 2

A decreasing-cost industry has a downward-sloping

A) long-run average cost curve.
B) long-run marginal cost curve.
C) short-run average cost curve.
D) short-run marginal cost curve.
E) long-run industry supply curve.

Liddy · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

Jim's private costs and the costs to society of repairing the alarm system are given in the table below. As the table illustrates, Society's expected costs are minimized if Jim has the alarm repaired. However, Jim's expected costs are minimized if he does not repair the alarm.

Alarm Repaired Alarm Unrepaired
Jim's Expected Cost 100 0
Society's Expected Cost 100 125

Answer to Question 2

E