The Occupational Safety and Health Administration (OSHA) has determined that 100 workers are exposed to a hazardous chemical used in the production of diet soft drinks. The cost of imposing a regulation that would ban the chemical is $10 million. OSHA has calculated that each person saved by this regulation has a value equal to $10 million. If the benefits are exactly equal to the costs, what probability is OSHA using to assess the likelihood of a fatality from exposure to this chemical?
A) 0.001
B) 0.01
C) 0.1
D) 1.0

Question

Quizplus · Accepted Answer

If the benefits are exactly equal to the costs, then the expected value of benefits equals the expected value of costs:
Expected value of benefits = 100 (number of workers) x $10 million (value per worker) = $1 billion
Expected value of costs = $10 million (cost of regulation)
The probability of a fatality can be calculated as follows:
Probability of fatality = Expected cost of a fatality / Expected value of benefits
We know that the expected value of benefits is $1 billion, and we want the expected cost of a fatality to equal $10 million (the cost of the regulation). Therefore,
Probability of fatality = $10 million / $1 billion = 0.01 or 1%
So OSHA is using a probability of 0.01 to assess the likelihood of a fatality from exposure to the chemical. The answer is B.

The Occupational Safety and Health Administration (OSHA) Has Determined That