A Small Neighborhood Is Considering Hiring a Security Firm to Patrol

question 26

Multiple Choice

A small neighborhood is considering hiring a security firm to patrol the neighborhood. Ten families in the neighborhood would each get a marginal benefit of MB = 10 - h, where h is daily hours of patrol. The marginal cost of patrol is constant at $20 per hour. What is the socially optimal number of patrol hours?

• A) 12
• B) 16
• C) 8
• D) 20

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Definitions:

Future Value

Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today.

Positive Rate Of Return

A situation where an investment or project yields a profit or return that exceeds the initial outlay.

Projects

Planned sets of interrelated tasks to be executed over a fixed period and within certain cost and other limitations.

Effective Annual Rate

An interest rate expressed as if it were compounded once per year, showing the full amount of interest an investment earns annually.