Public Finance, problem set 6 due Oct. 31
Suppose that the annual marginal benefit of crime prevention program that puts police walking the beat on the streets of Santa Misesia has been estimated as MB = 500,000-1,200q, where q is the number of police employed in the program.
a. What is the total benefit of the program when 200 police are employed?
b. What is the change in total benefit if we increase the number of police from 200 to 250?
c. If the marginal cost of employing a policeman is $80,000 per year, what is the optimal number of policemen to hire?
d. If the optimal number of police officers are hired, what is the expected net benefit of the program?