Question 1. Fireworks (15 points) Dave's favorite thing to do on July 4 is to drink four beers and set off reworks in front of his house. If he drinks less than that, he enjoys the fireworks less, but there's also less of a risk something goes wrong and starts a re. Drinking less than he wants is therefore a form of precaution it costs Dave something, but reduces the chance he causes an accident. Suppose a fire started by Dave's reworks would cause $10,000 of harm to his neighbors. Dave's enjoyment, and the risk, are as follows: Beers Dave drinks En ' men: om rework: Risk 0 a my 4 $400 3.0% 3 $300 1.5% 2 $200 0.8% 1 $100 0.3% 0 $50 0.1% (a) What is the efcient amount of beer for Dave to drink? Why? (b) Under a strict liability rule, how much beer would Dave drink? Why? (0) Suppose the standard of care for a simple negligence rule is determined by the Hand Rule. What's the most beer Dave could drink and not be liable for damages if he started a re? How much beer would he drink? (d) Under which rule strict liability or simple negligence would Dave keep setting off reworks for longer? Why? (c) There are things Dave's neighbors can do sweeping up dead leaves on their property, parking their cars around the block that make it less likely he'll start a re. Which rule strict liability or simple negligence gives them a stronger incentive to take these actions? Explain