An old story goes that an economist was walking down the street, in no particular hurry. The young economist sees what looks like a $100 bill on the ground across the street. She makes to cross the street and pick up the bill, buthesitates, thinking, "If it were a real $100 bill, someone would already have picked it up."

a) In this story, what are the potential benefits of crossing the street?

b) What are the costs?

For parts (c) and (d), suppose that the young economist is in a hurry. She is already running late for an event, and if she takes the time to cross the street, she will miss it altogether.

c) What sort of cost have we now introduced to crossing the street?

d) Suppose the young economist can tell for sure that the item across the street was a genuine $100 bill. Under what circumstance should she cross the street to collect it?

For part (e), suppose that there is a 50% chance of it being a real $100 bill, and a 50% chance of it being a fake bill.

e) What parameter must the young economist now consider when making her cost-benefit analysis?