A Blue Ribbon Committee has decided that the amount of acid rain should be reduc

Question

A Blue Ribbon Committee has decided that the amount of acid rain should be reduced and is trying to determine the optimal level of reduction. There are benefits from reducing acid rain (reduced loss of wildlife and forest, better health, etc.), but there are also costs. The committee estimates that the marginal benefit of each unit of reduction is $1,400 ? 5R, where R is units of reduction, and the marginal cost is 2R. If the committee wants to maximize the net benefit from reducing acid rain, what is the optimal level of reduction?

a. 20

b. 400

c. 100

d. 200

A Blue Ribbon Committee has decided that the amount of acid rain should be reduced and is trying to determine the optimal level of reduction. There are benefits from reducing acid rain (reduced loss of wildlife and forest, better health, etc.), but there are also costs. The committee estimates that the marginal benefit of each unit of reduction is $1,400 ? 5R, where R is units of reduction, and the marginal cost is 2R. If the committee wants to maximize the net benefit from reducing acid rain, what is the optimal level of reduction?

20

400

100

200

a. 20

b. 400

c. 100

d. 200

Explanation / Answer

ANSWER IS

b. 400

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