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Kala is operating an ATV on the beach. The level of care he chooses in uences whether there is an accident in which his ATV

Kala is operating an ATV on the beach. The level of care he chooses in uences whether there is an accident in which his ATV harms a sunbather. Kala's cost of exerting care of x is given by wx. That is, Kala has a constant marginal cost of exerting care which is w. The probability of an accident is given by p(x), which is decreasing in x, and the harm imposed on a sunbather in the event of an accident is given by A. (a) Suppose there is an accident, and it turns out that w < p0(x)A. What does the \Hand Rule, imply about whether Kala was negligent? Explain. (b) Disregard the information in part (a) above. Suppose that A = 1000 and w = 100. Suppose that x must be a whole number between 0 and 5, and the corresponding value of p(x) is given in the table below. For which values of x would the \Hand Rule" imply that Kala is not negligent? x p(x) 0 1 1 .6 2 .4 3 .25 4 .2 5 :17 1

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