Choose a level of care to exert

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Steve is driving his truck and can choose a level of care to exert, which is denoted by x, which must be finite and non-negative. His cost of exerting x is given by wx. That is, Steve's marginal cost of exerting is w. The probability p(x) that he causes harm of A to someone else is given by 1/[1+x]. So p'(x)= -1/[1+x]^2.

Suppose A=256 and W=4. What is the socially optimal level of care?

Reference no: EM131808365

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