In the problem discussed in your workbook, the cost of capturing a cockatoo and transporting him to the United States is about $40 per bird.Cockatoos are drugged and smuggled in suitcases to the United States.Half of the smuggled cockatoos die in transit.Each smuggled cockatoo has a 10% probability of being discovered, in which case the smuggler is fined.If the fine imposed for each smuggled cockatoo is increased to $1,200, then the equilibrium price of cockatoos in the United States will be

A) $100.
B) $160.
C) $76.
D) $355.56.
E) $266.67.

Question

Devontres Dukes · Accepted Answer

Final Answer : D, Explanation :  The equilibrium price can be calculated considering the cost of smuggling, the probability of cockatoos dying, and the probability of being fined. The initial cost is $40, but only half survive, effectively doubling the cost to $80 per surviving cockatoo. With a 10% chance of a $1,200 fine, the expected fine cost per bird is $120 (10% of $1,200). Adding this to the $80 cost gives $200 as the cost to smuggle a cockatoo successfully. However, since only half survive, this cost is effectively for two birds, making the cost per bird $400. Dividing this by the survival rate (50% or 0.5) gives an equilibrium price of $400 / 0.5 = $800 for two birds, or $400 per bird, which is not an option here. The calculation seems to have been misunderstood. Let's correct the approach:Given:- Cost per bird = $40- 50% die, so for every 2 birds smuggled, 1 dies, effectively doubling the cost to $80 for every bird that makes it.- 10% chance of being discovered leads to a $1,200 fine.Correct calculation:- For every bird that makes it, the cost is $80 (due to the 50% mortality rate).- The expected fine per bird is 10% of $1,200 = $120.- Therefore, the total expected cost per bird that makes it is $80 (cost and mortality) + $120 (expected fine) = $200.- Since this is the cost for the smuggler, the equilibrium price would have to cover this cost, plus a profit margin for the risk involved.The mistake in the initial explanation was in the calculation of the final price per bird, not properly accounting for the expected fine in the total cost calculation. The correct answer should reflect the cost of smuggling considering both the mortality rate and the expected fine, but without the provided options directly matching the corrected calculation, it seems there was a misunderstanding in the explanation process. The correct approach to find the equilibrium price would involve understanding the total costs including the smuggling cost, mortality rate, and fine, then determining how these factors influence the final price. However, without recalculating based on the options provided, the correct answer cannot be directly determined from the initial explanation provided.

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