Final answer:
To find the dollar value of incremental benefits of increased ozone abatement from 10% to 20%, use the MSB function MSB = 120 − 2.5A to evaluate both levels. The increment is the difference in MSB, which is $25 million in this case.
Step-by-step explanation:
The student asked how to determine the dollar value of incremental benefits associated with an increase in ozone abatement from 10 percent to 20 percent, given the marginal social benefit (MSB) function MSB = 120 − 2.5A.
To calculate the dollar value of the incremental benefits offered by the policy initiative, we first need to evaluate the MSB at the new abatement level (A = 20) and the initial abatement level (A = 10), and then find the difference between the two. Plug in A = 20 into the MSB function to get MSB = 120 − 2.5(20), which equals $70 million. Then plug in A = 10 to get MSB = 120 − 2.5(10), which equals $95 million. The incremental benefit is the difference between the two: $95 million - $70 million, which equals $25 million.
Step-by-step calculation
- Calculate MSB at A = 20: MSB = 120 − 2.5(20) = $70 million.
- Calculate MSB at A = 10: MSB = 120 − 2.5(10) = $95 million.
- Find the incremental benefit: $95 million - $70 million = $25 million.
This $25 million represents the total increase in social benefits due to the policy's change from 10 percent to 20 percent ozone abatement.