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 $1,100, then the equilibrium price of cockatoos in the United States will be

Question

Quizplus · Accepted Answer

The equilibrium price is calculated by considering the cost of capturing, the probability of discovery, and the fine. The cost per surviving bird is $80 (since half die), and with a 10% chance of a $1,100 fine, the expected fine per bird is $110. Thus, the total cost per bird is $80 + $110 = $190. The price must be higher than this cost to ensure profit, leading to an equilibrium price of $333.33.

In the Problem Discussed in Your Workbook, the Cost of Capturing