A local charity has been given a grant to serve free
meals to the homeless in its community, but it is worried that its program
might be exploited by nearby college students, who are always on the lookout
for a free meal. Both a homeless person and a college student receive a payoff of
10 for a free meal. The cost of standing in line for the meal is t – 320 for a
homeless person and t2 160 for a college student, where t is the
amount of time in line measured in minutes. Assume that the staff of the
charity cannot observe the true type of those coming for free meals.
(a) What is the minimum wait time t that will achieve
separation of types?
(b) After a while, the charity finds that it can
successfully identify and turn away college students half of the time. College
students who are turned away receive no free meal and, further, incur a cost of
5 for their time and embarrassment. Will the partial identification of college
students reduce or increase the answer in part (a)? Explain.