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tort check

There is an attached chart. BTW the problem is talking about an amusement park, just so you know what I mean when I say "park" or "rides".

The probability column wasn't needed then (I asked the professor) but it may be in one of these:

1. Under a rule of strict liability, how many inspections are likely to result? Under what circumstances will this be the efficient outcome?

Now, assume we pass a law that caps damages on lawsuits so that no park has to pay out more than $100,000 to consumers injured on their rides. The judge continues to use the expected accidents loesses given in the chart to set the reasonable level of care.

2. How many safety checks would result under a negligence rule with this cap on damages? (show why)

3. How many safety checks would result under a rule of strict liability with this cap on damages? (show why)

Now assume that in addition to the cap on damages, firms believe that 75% of those who are injured will use the legal system to recover damages.

4. How many inspections would the firm choose to undertake under a rule of negligence? (show why)

5. How many inspections would the firm choose to undertake under a rule of strict liability? (show why)

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Solution Preview

Please refer to the attachment.

1. Under a rule of strict liability, how many inspections are likely to result? Under what circumstances will this be the efficient outcome?

Under a rule of strict liability, the injurer is liable for the loss. Therefore, it is necessary to take into consideration the expected accident loss.
In the analysis, we will take these columns as marginal effects, e.g., marginal revenue and cost.
Moreover, we notice that the column "EXPECTED Accident loss" is actually the product of probability and total loss. (because column Expected Loss = Prob * 500,000)
Then we can compute EC = Cost of Safety + Prob * Loss in Column G.
(* If this is not the case, please show the whole case and conditions for this question.)
FFor the park to maximize total profit, it will decide the number of Safety checks that will make the marginal revenue and marginal EC equal.
We show these curves in the figure. It is found that the ...

Solution Summary

Safety checks are assessed.

$2.19