A radio manufacturer is experiencing theft problems at its warehouse and has decided to hire security guards to reduce the thefts.The firm wants to maximize the net benefit of warehouse security guards. $\begin{array}{c}
\begin{array}{c}
\text {Number of}\
\text { Security Guards}\
0\
1\
2\
3\
4\
5\
\end{array}
\begin{array}{c}
\text {Number of Radios}\
\text { Stolen Per Week }\
50\
30\
20\
14\
8\
6\
\end{array}
\end{array}$
Given the above info,in order to minimize the NET cost of theft,a firm should choose the level of theft prevention at which
A)theft is eliminated.
B)the marginal benefit of theft equals the marginal cost of the theft.
C)the total benefit of theft prevention equals the total cost of the theft prevention.
D)the marginal benefit of theft prevention equals the marginal cost of preventing theft.
E)the total cost of theft prevention equals the total cost of preventing theft.

Question

A radio manufacturer is experiencing theft problems at its warehouse and has decided to hire security guards to reduce the thefts.The firm wants to maximize the net benefit of warehouse security guards. $\begin{array}{c}
\begin{array}{c}
\text {Number of}\
\text {  Security Guards}\
0\
1\
2\
3\
4\
5\
\end{array}
\begin{array}{c}
\text {Number of Radios}\
\text { Stolen Per Week }\
50\
30\
20\
14\
8\
6\
\end{array}
\end{array}$
  Given the above info,in order to minimize the NET cost of theft,a firm should choose the level of theft prevention at which
A)theft is eliminated.
B)the marginal benefit of theft equals the marginal cost of the theft.
C)the total benefit of theft prevention equals the total cost of the theft prevention.
D)the marginal benefit of theft prevention equals the marginal cost of preventing theft.
E)the total cost of theft prevention equals the total cost of preventing theft.

Quizplus · Accepted Answer

The firm wants to maximize the net benefit of warehouse security guards, which means they want to minimize the total cost of theft and the cost of theft prevention while maximizing the benefit of theft prevention. To determine the optimal level of theft prevention, the firm should choose the level at which the marginal benefit of theft prevention equals the marginal cost of preventing theft. This occurs where the number of security guards is such that the decrease in stolen radios resulting from hiring an additional guard is equal to the cost of hiring that guard. Therefore, the correct choice is D - the level at which the marginal benefit of theft prevention equals the marginal cost of preventing theft.

A Radio Manufacturer Is Experiencing Theft Problems at Its Warehouse