Assume that a government is considering a new social program and may choose to include in this program any number of four progressively larger projects. The marginal cost and the marginal benefits of each of the four projects are given in the table. Refer to the above table and information. What is the net benefit of project D?

Question

Assume that a government is considering a new social program and may choose to include in this program any number of four progressively larger projects. The marginal cost and the marginal benefits of each of the four projects are given in the table.  Refer to the above table and information. What is the net benefit of project D?

Quizplus · Accepted Answer

To maximize net benefits, the government should choose projects that have a positive net benefit, which means the marginal benefits are greater than the marginal costs. From the table, we can see that only projects C and D have positive net benefits. 
The net benefit of project C is $7 billion (= $12 billion - $5 billion), while the net benefit of project D is $4 billion (= $20 billion - $16 billion). Therefore, the best choice(s) would be project C and project D, with a total net benefit of $7 billion + $4 billion = $11 billion. Project D alone would have a net benefit of $4 billion.

Assume That a Government Is Considering a New Social Program