Question
Canada Border Services Agency (CBSA) wants to keep the amount of illegal goods brought by traveller's across a particular Canada-USA border crossing at a current
Canada Border Services Agency (CBSA) wants to keep the amount of illegal goods brought by traveller's across a particular Canada-USA border crossing at a current low level. At the same time CBSA wants to do it at the lowest cost. Each customs officer costs 60,000$ per year. Each officer increases the probability of detection of illegal goods by 20%. If no officers are hired, the probability of detection is 0%. If 5 officers are hired, the probability of detection is 100%. Currently 4 officers are employed, and the fine for bringing in illegal goods is 30$.
Assuming travelers are risk-neutral, and the CBSA wants to keep the amount of illegal goods at the same exact level as now, while minimizing the cost of enforcement, how many customs officers should be hired and how high should the fine be?
A. Two officers; $80
B. One officer; $120
C. One officer; $200
D. Two officers; $160
Step by Step Solution
3.39 Rating (146 Votes )
There are 3 Steps involved in it
Step: 1
To determine the optimal number of customs officers and the fine amount we need to find the combination that minimizes the cost of enforcement while m...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started