Question

Obama drives up​ miles-per-gallon requirements Emissions from all new vehicles must be cut from 354 grams to 250 grams. To meet this new​ standard, the price of a new vehicle will rise by​ $1,300. ​Source: USA Today​, May​ 20, 2009 What is the opportunity cost of reducing the emission level by 1​ gram?

Answer 1

$12.5 per gram

Step-by-step explanation:

Opportunity cost is the cost which is:

• Future related cost
• Cash flow in nature
• Incremental Cost or Differential

In simple words, opportunity cost is the benefit lost due to given up another best alternative.

To reduce the pollution level from 354 to 250 gram, the price of new vehicle will increase by $1300.

Hence

The increase in price per gram = $1,300 / (354 - 250) = $12.5 per gram

This is the opportunity cost per gram increase in Carbon dioxide emission which the companies will have to bear if they don't opt to environmental free vehicles.