ViewZoom Insert Table Chart Text hape Mecia Comment Format Document ECO 2023.003
ID: 1147609 • Letter: V
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ViewZoom Insert Table Chart Text hape Mecia Comment Format Document ECO 2023.003 Homework1 Economics HW 1 1. Suppose a bank is deciding whether or not to hire an armed guard to prevent bank robberies. The cost of hiring the armed guard is $10,000 per year and prevents all robberies of the bank from occurring. Without the guard, the bank expects to lose $8,000 due to robberies during the year. Only consider the explicit costs given above and ignore any potential psychological and other implicit costs a. What is the marginal benefit of hiring the armed guard? What is the marginal cost? What is the net benefit? Will the bank hire the guard? b. The bank is unaware that robbers have become more resourceful, thus, unknown to the bank, the true cost of robberies is $12,000. Will the bank hire the armed guard now? Explain c. The following year, the bank has caught on and realizes that the cost of the robberies is the same as in part b ($12,000). Will the bank hire the armed guard now? Explain 162 wordsExplanation / Answer
a) The marginal cost of hiring an armed guard is $10,000. And the banks are loosing just $8000 from robbery if they do not hire any guard. There is no marginal benefit from hiring a new armed guard for the bank as the cost is more than the total robbery occurring the banks will lose $2000 if they hire a guard. Taking into account all this, the bank will not hire an armed guard.
b) No, the bank will not hire the armed guard now. The loss from robberies might be $12,000 but the bank is unaware of this according to them the loss is only $8000. So they will not hire an armed guard.
c) Yes, now that the banks know that they are losing more money than they expected and the cost is more than hiring an armed guard they will hire an armed guard and save $2000 from that. Total loss to robbery is $12,000 and a guard cost is $10,000, total benefit from an armed guard is $2,000.
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