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Unformatted text preview: the user suffers a monetary loss of $5,000. An extra-thick bottle costs an additional 4 cents to produce and reduces the risk of explosion to zero. Assume the cola industry is competitive. a. Suppose that consumers accurately perceive that the risk of explosion is 1/100,000 for normal bottles. Compare the outcomes under strict liability to those under no liability. b. Suppose that consumers erroneously believe that the risk of explosion is 0 even for normal bottles. Compare the outcomes under strict liability to those under no liability. c. Suppose that there is also a second class of consumers who suffer a loss of $2,500 rather than $5,000 when a bottle explodes. Again assume that consumers accurately perceive the risk of explosion. Compare strict liability to no liability. Recall that there are now two different classes of consumers....
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- Spring '08