Suppose that you are an otherwise law-abiding college professor earning $80,000 a year. Suppose further that you are confronted with the opportunity to steal a painting worth an estimated $350,000 on the black market. You know full well that if you get caught and convicted, you could face a prison sentence of 10 years plus a fine of $5,000. The estimated arrest rate in your state for such crimes is 25% while the conviction rate is around 80%. (a) Calculate your expected MB and MC. Assuming that you are a rational thief, would you steal the painting? (b) All Else Equal, what would the jail sentence have to be to make you indifferent between stealing the painting and not? (c) All Else Equal, what would the fine have to be to make you indifferent between stealing and not stealing? (d) All Else Equal, what would the joint probability of arrest and conviction [probability of arrest x probability of conviction] be to make you indifferent?
Suppose that you are an otherwise law-abiding college professor earning $80,000 a year. Suppose further that you are confronted with the opportunity to steal a painting worth an estimated $350,000 on the black market. You know full well that if you get caught and convicted, you could face a prison sentence of 10 years plus a fine of $5,000. The estimated arrest rate in your state for such crimes is 25% while the conviction rate is around 80%. (a) Calculate your expected MB and MC. Assuming that you are a rational thief, would you steal the painting? (b) All Else Equal, what would the jail sentence have to be to make you indifferent between stealing the painting and not? (c) All Else Equal, what would the fine have to be to make you indifferent between stealing and not stealing? (d) All Else Equal, what would the joint probability of arrest and conviction [probability of arrest x probability of conviction] be to make you indifferent?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Suppose that you are an otherwise law-abiding college professor earning $80,000 a year. Suppose
further that you are confronted with the opportunity to steal a painting worth an estimated $350,000
on the black market. You know full well that if you get caught and convicted, you could face a prison
sentence of 10 years plus a fine of $5,000. The estimated arrest rate in your state for such crimes is 25%
while the conviction rate is around 80%.
(a) Calculate your expected MB and MC. Assuming that you are a rational thief, would you steal the
painting?
(b) All Else Equal, what would the jail sentence have to be to make you indifferent between stealing
the painting and not?
(c) All Else Equal, what would the fine have to be to make you indifferent between stealing and not
stealing?
(d) All Else Equal, what would the joint probability of arrest and conviction [probability of arrest x
probability of conviction] be to make you indifferent?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Step 1: Define Marginal Benefit and Marginal Cost
VIEWStep 2: (a) Determine expected Marginal Benefit (MB) and Expected Marginal Cost (MC)
VIEWStep 3: (b) Determine Indifference Point for Jail Sentence
VIEWStep 4: c) Determine Indifference Point for Fine
VIEWStep 5: (d) Determine Indifference Point for Joint Probability
VIEWSolution
VIEW
Trending now
This is a popular solution!
Step by step
Solved in 6 steps with 10 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education