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) increases; decreases
C) decreases; decreases
D) decreases; increases

Question

Quizplus · Accepted Answer

As more freeways are constructed, the marginal benefit of additional freeways decreases (due to diminishing returns) while the marginal cost of additional freeways increases (due to the need for more resources). Therefore, it would be more efficient to allocate resources towards building more dams instead.

Suppose That the Government Is Trying to Decide Between Allocating