A manufacturer of grenade launchers estimates that the probability of a fatal accident caused by the design of its product is 1/80,000 and the value of a life lost is $2 million. The manufacturer can change the design to eliminate that chance for $20 per grenade launcher and is prepared to incorporate all cost-justified precautions. Will the manufacturer change the design? What would the benevolent social planner think about the manufacturer's decision if the true value of a life is actually $1.5 million?

Question

Quizplus · Accepted Answer

The Answer of A manufacturer of grenade launchers estimates that the probability of a fatal accident caused by the design of its product is 1/80,000 and the value of a life lost is $2 million. The manufacturer can change the design to eliminate that chance for $20 per grenade launcher and is prepared to incorporate all cost-justified precautions. Will the manufacturer change the design? What would the benevolent social planner think about the manufacturer's decision if the true value of a life is actually $1.5 million?

A Manufacturer of Grenade Launchers Estimates That the Probability of a Fatal