Canada Border Services Agency (CBSA) wants to keep the amount of illegal goods brought by traveller's across
Question:
Canada Border Services Agency (CBSA) wants to keep the amount of illegal goods brought by traveller's across a particular Canada-USA border crossing at a current low level. At the same time CBSA wants to do it at the lowest cost. Each customs officer costs 60,000$ per year. Each officer increases the probability of detection of illegal goods by 20%. If no officers are hired, the probability of detection is 0%. If 5 officers are hired, the probability of detection is 100%. Currently 4 officers are employed, and the fine for bringing in illegal goods is 30$.
Assuming travelers are risk-neutral, and the CBSA wants to keep the amount of illegal goods at the same exact level as now, while minimizing the cost of enforcement, how many customs officers should be hired and how high should the fine be?
A. Two officers; $80
B. One officer; $120
C. One officer; $200
D. Two officers; $160
Cornerstones of Managerial Accounting
ISBN: 978-0176530884
2nd Canadian edition
Authors: Maryanne M. Mowen, Don Hanson, Dan L. Heitger, David McConomy, Jeffrey Pittman