Question

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 20% citywide, and the average opportunity cost of parking is, again, $25. 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.

Answer 1

The fine that would make the average person indifferent between searching for legal parking and parking illegally is $125 when the probability of getting caught is 20% and the opportunity cost is $25.

Step-by-step explanation:

The student is asking about the concept of opportunity cost and its implications in decision-making related to illegal activities, such as illegal parking. The situation presented in the question involves an economic analysis to calculate the fine that would deter people from parking illegally by making the expected cost of parking violations greater than the opportunity cost of finding legal parking. To find this fine, we assume people are rational and would not choose to park illegally if the expected cost is higher than searching for parking.

If the probability of getting caught is 20%, and the opportunity cost of parking is $25, then the fine that makes a person indifferent would be the one where the expected cost of illegal parking equals the opportunity cost. The expected cost of illegal parking is the probability of getting caught (0.20) times the fine. Therefore, to make the expected cost ($5, which is 20% of $25) equal the opportunity cost, the fine should be set to $125.