Suppose residents of the town of Beachville are concerned about shark attacks and are considering...

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Suppose residents of the town of Beachville are concerned about shark attacks and are considering installing a shark warning

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Answer 1

Answer #1

Solution:

The chance of shark attack shall reduce from 0.002 to 0.001. So, reduced chance of shark attack = 0.002 - 0.001 = 0.001.

This is same as saying that the human death chance shall reduce by 0.001 chance.

Given that value of a human life = $10m, the expected benefit of such system is 0.001*$10m = $10,000

The cost of such warning system = $50,000, clearly benefit of the system is lower than it's cost ($10,000 < $50,000), and so it is optimal for the shark warning system to be not installed.

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Answer 2

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