Tom is driving home, and he can drive up to 100 mph with his car. If Tom chooses to drive at 100?x mph (x > 0), then he gets disutility of x, but an accident occurs with probability 1/x. The cost of an accident is 1700. (Show your work for full credit.)a) What is the socially efficient speed?b) Under no liability, how fast would Tom drive? Is it efficient?c) Under strict liability, how fast would Tom drive? Is it efficient? (Assume that Tom is prosecutedevery time an accident happens.)d) Assume that there is a speed limit of 50 mph. Tom would be found negligent if he drives fasterthan 50 mph. Under the negligence rule, how fast would Tom drive? Is it efficient?e) Assume that the court underestimates the cost from an accident. Suppose that the court thinksthe cost of an accident is 1000 instead of 1700 although the actual cost is still 1700. Redo parts (b) -(d).
Tom is driving home, and he can drive up to 100 mph with his car. If Tom chooses to drive at100?x mph (x > 0), then he gets disutility of x, but an accident occurs with probability 1/x. The…
