2 The expected value of illegal parking Aa Aa Tim has diffic

2. The expected value of illegal parking Aa Aa Tim 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, Tim 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 benefits of not searching for parking. Suppose that Tim knows that the fine for parking this way is $100 and his opportunity cost (OC) of searching for parking is $35 per day. That is, if he parks on the sidewalk and does not get a ticket, he gets a positive payoff worth $35; if he does get a ticket, he ends up with a payoff of 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%. . Given that he still does not know the Probability of Ticket 1096 50% EV of Sidewalk Parking (OC $35) Based on the values you found in the previous table, use the blue line (circle symbols) on the following graph to plot the expected value of sidewalk parking when the opportunity cost of time is $35. Now, suppose Tim gets a new job that requires him to work fewer hours. As a result, the opportunity cost of his time falls, and he now values the time saved from not having to look for parking at only $15 per day. Again, compute the expected value of the payoff from parking on the sidewalk, given the two different probabilities of getting a ticket. Probability of Ticket 10% 5096 EV of sidewalk Parking (OC-$15) Use the orange line (square symbols) on the following graph to plot the expected value of sidewalk parking when the opportunity cost of time is $15.

Solution

Answer for 1st Blank

Fine to be paid if he gets caught is 100 and Opportunity cost is 35 therefore he ends up with the payoff equals to 65

Probability of getting ticket is 10% then expected payoff will be 0.1(-65)+0.9(35)=31.5-6.5=25

Probability of getting ticket is 50% then expected payoff will be 0.5(-65)+0.5(35)=-32.5+17.5=-15

Now for Opportunity cost =$15

Probability of getting ticket is 10% then expected payoff will be 0.1(-85)+0.9(15)=-8.5+13.5=5

Probability of getting ticket is 50% then expected payoff will be 0.5(-85)+0.5(15)=7.5-42.5=-35

He ends