Assume that a government is considering a new social program and may choose to include in this program one of four progressively larger projects. The marginal cost and the marginal bene?ts of each of the four
Projects are given in the table below.
$$\begin{array} { | c | c | c | }
\hline \text { Project } & \text { Marginal Cost } & \text { Marginal Benefit } \
\hline A & \$ 1 \text { Billion } & \$ 2 \text { Billion } \
\hline B & 2 \text { Billion } & 3 \text { Billion } \
\hline C & 5 \text { Billion } & 7 \text { Billion } \
\hline D & 7 \text { Billion } & 8 \text { Billion } \
\hline
\end{array}$$ Suppose that the government chooses to do project C. What is the total cost and total bene?t of doing project
C?
A) Total cost is $5 billion, and total bene?t is $7 billion.
B) Total cost is $4 billion, and total bene?t is $7 billion.
C) Total cost is $8 billion, and total bene?t is $12 billion.
D) Total cost is $15 billion, and total bene?t is $20 billion.

Question

Assume that a government is considering a new social program and may choose to include in this program one of four progressively larger projects. The marginal cost and the marginal bene?ts of each of the four
Projects are given in the table below.
$$\begin{array} { | c | c | c | } 
\hline \text { Project } & \text { Marginal Cost } & \text { Marginal Benefit } \
\hline A & \$ 1 \text { Billion } & \$ 2 \text { Billion } \
\hline B & 2 \text { Billion } & 3 \text { Billion } \
\hline C & 5 \text { Billion } & 7 \text { Billion } \
\hline D & 7 \text { Billion } & 8 \text { Billion } \
\hline
\end{array}$$ Suppose that the government chooses to do project C. What is the total cost and total bene?t of doing project
C?
A) Total cost is $5 billion, and total bene?t is $7 billion.
B) Total cost is $4 billion, and total bene?t is $7 billion.
C) Total cost is $8 billion, and total bene?t is $12 billion.
D) Total cost is $15 billion, and total bene?t is $20 billion.

Quizplus · Accepted Answer

Project C has the highest net benefit ($4 billion) because the marginal benefit of $12 billion is greater than the marginal cost of $8 billion. Therefore, choosing project C would result in a total cost of $8 billion and a total benefit of $12 billion. Projects A, B, and D have lower net benefits, so they would not be the best choice.

Assume That a Government Is Considering a New Social Program