What is the new expected cost of peer-to-peer file sharing

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Economists can measure this kind of as an expected cost. The expected cost of engaging in an illegal activity equals the cost you pay if you are caught time the probability that you will be caught. For example, suppose 10,000,000 people share music files and the RIAA randomly sues 10 of these people. If you share music files, your probability of being sued is 1 in 1,000,000. Suppose that if you are sued, you will pay a $10,000 fine. In this case, your expected cost of sharing files is $10,000 times the probability of being sued, of $10,000 times (1 divided by 1,000,000), which equals $0.01.

Now suppose that the number of RIAA lawsuits increase to 10,000. what is the new expected cost of peer-to-peer file sharing?

Reference no: EM13995778

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