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In: Economics

Fred is contemplating stealing a car. He works as an auto mechanic and earns $700 per...

Fred is contemplating stealing a car. He works as an auto mechanic and earns $700 per week. The penalty for auto theft is 3 years in prison and a $5,000 fine. The probability of being caught and arrested by police for the crime is 40%. The probability of being convicted and sentenced in the court system for the crime is 75%. What is Fred’s undiscounted expected punishment cost? Select one: a. $10,920 b. $14,490 c. $22,640 d. $34,260

Solutions

Expert Solution

Ans. Option D; $34,260

We will have to calculate the probability for the number of days of imprisonment and the amount of fine to be paid.

For the time period we have 3 years with 52 weeks in a year with 40% chances of being caught.

So probability for time period with respect to being caught = 3 *52 *40 / 100 = 62.4 Weeks.

Now probability of punishment is 75% so time will be = 62.4 *75 / 100 = 46.8 Weeks.

Monetary loss of wages due to being caught = 46.8 weeks @ $700 per week = $32,760

Apart from being caught probability of fine will be as follows, chances of being caught are 40%. So amount of fine will be = 5000 * 40 / 100 = $2000. Next the chances of being punished are 75%, so amount of fine will be as below.

Amount of fine with probability of being punished = 2000 * 75 / 100 = $1500.

The total undiscounted punishment cost = Loss of wages + Fine = $32760 + $1500 = $ 34,260

Rahul Sunny answered 2 years ago
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