Paolo has difficulty finding parking in his neighborhood and, thus, is considering the gamble of illegally parking on the sidewalk because of the opportunity cost of the time he spends searching for parking. On any given day, Paolo knows he may or may not get a ticket, but he also expects that if he were to do it every day, the average amount he would pay for parking tickets should converge to the expected value. If the expected value is positive, then in the long run, it will be optimal for him to park on the sidewalk and occasionally pay the tickets in exchange for the benefils of not searching for parking. Suppose that Paolo knows that the ne for parking this way is $100, and his opportunity cost (DC) of searching for parking is $15 per day. That is, if he parks on the sidewalk and does not get a ticket, he gets a positive payoff worth $15; if he does get a ticket, he ends up with a payoff of Given that Paolo does not know the probability of getting caught, compute his expected payoff from parking on the sidewalk when the probability of getting a ticket is 10% and then when the probability is 50%. Probability of Ticket 10% 50% EV of Sidewalk Parking (CC = $15) Now, suppose Paolo gets a new job that requires him to work longer hours. As a result, the opportunity cost of his time rises, and he now values the time saved from not having to look for parking at $30 per day. Again, compute the expected value of the payoff from parking on the sidewalk given the two di'erent probabilities of getting a ticket. Probability of Ticket 10% 50% EV of Sidewalk Parking (CC = $30) Based on the values you found in the rst table, use the blue line (circle symbol) to plot the expected value of sidewalk parking on the following graph when the opportunity cost of time is $15. Based on the values you found in the second table, use the orange line (square symbol) to plot the expected value of sidewalk parking when the opportunity cost of time is $30. 50 + 40 g 30 EthenOCis$15 X 3% I:I B. 20 _l c: 3 1o EthenOCis$3O 2 LL 0 0 LLI 2 .10 > E .20 B n. .30 X I.\" -40 -50 Cl 20 4O 60 80 100 PROBABILITY 0F TICKET Despite Paolo's uncertainty regarding the exact probability of being ticketed, suppose he decides to go ahead and park illegally every business day for two months (a total of 40 times). During the two months, he receives tickets on 9 days. If this is an accurate reflection of the overall probability of receiving a ticket, then there is a v chance of receiving a ticket. Given this chance of getting ticketed, he 7 have parked illegally when the opportunity cost of searching was $15. Now that the oppottunity cost of searching is $30, at the same chance of getting a ticket, he V park illegally