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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.

2 Answers

3 votes

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

  1. Calculate MSB at A = 20: MSB = 120 − 2.5(20) = $70 million.
  2. Calculate MSB at A = 10: MSB = 120 − 2.5(10) = $95 million.
  3. 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.

User Jason Etheridge
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3 votes

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

Step-by-step explanation:

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

0.1
*A = 120 - 2.5A

2.6
*A=120

A=
(120)/(2.6)

A = 46.15

Incremental benefit MSB = 120 - 2.5
*46.15 =$4.615

$4.615 is the dollar value of incremental benefit.

User Hank Chan
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6.4k points