Question

Suppose the federal government is considering an air quality policy initiative that would effectively increase abatement (A) of ozone from 10 percent to 20 percent and that the marginal social benefit (MSB) of ozone abatement in millions of dollars has been estimated as MSB = 120 − 2.5A. Determine the dollar value of incremental benefits associated with this initiative.

Answer 1

Answer: $4.615 is the dollar value of incremental benefit.

Explanation:

10% increase in abatement A would be equal to the marginal social benefit.

0.1$\times$A = 120 - 2.5A

2.6$\times$A=120

A=$\frac{120}{2.6}$

A = 46.15

Incremental benefit MSB = 120 - 2.5$\times$46.15 =$4.615

$4.615 is the dollar value of incremental benefit.