Question

If soda is packaged in bottles, the production cost per unit is 40 cents, the chance of an accident is 1 in 100,000, and the loss if an accident occurs is $10,000. The expected accident loss per unit is 10 cents, that is 1/100,000 x $10,000. If soda is packaged in cans, the production cost is 43 cents, the chance of an accident is 1 in 200,000, the loss if an accident occurs is $4,000, and the expected accident loss is 2 cents (1/200,000 x $4,000). That is, cans are less likely to explode than bottles, and on average do less damage when they do explode since there is no flying glass.

1. Given that soda production and consumption involves a certain unavoidable level of accidents, regardless of how the soda is packaged, should soda be produced at all?

2. In a sentence, explain your answer to Question 1 in terms of the costs and benefits to consumers. (Accord consumers the honor of allowing them to pursue their own well-being on their own terms: Your explanation should be in the same terms you might explain why you do or do not you think the automobile should be banned, given that more than 30,000 people are killed in traffic accidents each year.)

Given that soda production and consumption involves a certain unavoidable level of accidents, regardless of how the soda is packaged, should soda be produced at all?

bottles or plastic?

Answer 1

Ans(a)

From the following conditons, we can say

For bottles : ESC=wX + P(x).A(x)

For Cans : ESC'=wX + P(x). A(x)

Therefore, Bottles :

ESC= 0.40 (1) + (1/100,000)(1). (10,000).(1)

= 0.40 + 0.10 = $0.50 per bottle

For Cans:

ESC'= 0.43 (1) + (1/200,000)(1). (4,000).(1)

= 0.43 + 0.02 = $ 0.45 per can

Hence,Society would incline toward cans in light of the fact that the normal social expense per can is lower than for bottles

Ans.(b) Bottles would be utilized on the grounds that no risk implies that on account of any mishap, they don't need to pay anything. In this way their degree of precautionary measure will equivalent to zero or possibly be not as much as cans, and society will disguise the entirety of the hazard, prompting wasteful conduct by soda manufacturer.

The can will be utilized on the grounds that, paying little heed to the cost of precautionary measure, the soda manufacturers can be held at risk for any safety measure it doesn't take, In the event that they are seen as careless, they should disguise the all out expense of the mishap, though society doesn't need to avoid potential risk by any means. The result will be effective conduct by soft drink organizations, yet not by customers.