Exponential Models: In a civil case a large company has a judgement made against it.

The magistrate states that the penalty is $1 million, to be paid on July 01 2018 and the

fine increases by $10 million each day thereafter. The companys legal counsel insists

that the penalty is unfair and arbitrary and hence they are not legally bound to pay the

fine until an appeal case is heard. The magistrate is very canny and in response to this

she decides to set aside her initial ruling and instead makes the following oer of a choice

of penalties, with the chosen penalty to be legally binding once agreed to:

Penalty A: $1 million dollars to be paid on July 01 2018 and the fine increases by $10 million

each day thereafter i.e. the original penalty

Penalty B: An initial amount of 1 cent, beginning on July 01 2018 and doubling thereafter,

with the fine payable to be the amount generated after 40 days of doubling

1. The company legal counsel is delighted and without recourse to a consulting mathematician, readily take the offer of Penalty B, thinking that a penalty of 1 cent cannot double sufficiently to be anywhere near Penalty A.

(a) Which penalty will be larger after the 40 days? Were the company counsel correct in taking the option of Penalty B?

(b) Express as a formula, the amount Penalty A as a function of time t , where t is the number of days after July 01 2018.

(c) Express as a formula, the amount Penalty B as a function of time t , where t is the number of days after July 01 2018.

(d) Graph both A(t) and B(t) on the same set of axes.

(e) Algebraically determine the time, t such that the different penalties are equal and represent it on the graph for part (c).

(f) What would be the cost to the company if it declined to pay the penalty for a full year?