Unformatted text preview: In the third line, the marginal savings function is MS(e) = 10 - e. Also, let’s add two additional parts to the question: c. Is this fine high enough to deter cheating? Explain. d. Suppose the regulator is able to increase the probability of audit to 0.05, but that it is just too costly to increase it any more. What is the optimal fine, f, to induce the firm to follow the emissions standard?...
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This note was uploaded on 04/02/2010 for the course ECON Econ 115 taught by Professor Kolstad during the Spring '10 term at UCSB.
- Spring '10
- Environmental Economics