Suppose that the government is trying to decide between allocating its resources to build more dams or to build more freeways. In terms of forgone dams, as more freeways ________are constructed, the marginal benefit of additional freeways and the marginal cost of additional freeways________
A) increases; increases
B) decreases; decreases
C) increases; decreases
D) decreases; increases

Question

Quizplus · Accepted Answer

As more freeways are constructed, the marginal benefit of additional freeways will decrease due to congestion, while the marginal cost of additional freeways will increase as the government has to acquire more land and face environmental concerns. Therefore, the government should allocate its resources to build more dams, which will have a higher marginal benefit and lower marginal cost.

Suppose That the Government Is Trying to Decide Between Allocating