A government is considering undertaking a construction project of an increasing scale (ranging from 1, 2, 3, to 4). The estimated marginal costs and marginal bene?ts of each successive scale of the project are given in the
Table below.
$$\begin{array} { | c | c | c | }
\hline \text { Project } & \begin{array} { c }
\text { Marginal Cost } \
\text { (in millions) }
\end{array} & \begin{array} { c }
\text { Marginal Benefit } \
\text { (in millions) }
\end{array} \
\hline 1 & \$ 8 & \$ 11 \
\hline 2 & 11 & 13 \
\hline 3 & 18 & 17 \
\hline 4 & 28 & 23 \
\hline
\end{array}$$ What is the total amount that the government should spend on the construction project to attain maximum net
Bene?ts for the society?

Question

A government is considering undertaking a construction project of an increasing scale (ranging from 1, 2, 3, to 4). The estimated marginal costs and marginal bene?ts of each successive scale of the project are given in the
Table below.
$$\begin{array} { | c | c | c | } 
\hline \text { Project } & \begin{array} { c } 
\text { Marginal Cost } \
\text { (in millions) }
\end{array} & \begin{array} { c } 
\text { Marginal Benefit } \
\text { (in millions) }
\end{array} \
\hline 1 & \$ 8 & \$ 11 \
\hline 2 & 11 & 13 \
\hline 3 & 18 & 17 \
\hline 4 & 28 & 23 \
\hline
\end{array}$$ What is the total amount that the government should spend on the construction project to attain maximum net
Bene?ts for the society?

Quizplus · Accepted Answer

To attain maximum net benefits for society, the government should choose the scale of the project where marginal benefit is equal to marginal cost. From the table, we can see that this occurs at Scale 3, where both marginal benefit and marginal cost are $19 million. Therefore, the government should spend $19 million on the construction project to attain maximum net benefits for society.

A Government Is Considering Undertaking a Construction Project of an Increasing