Question

Suppose the graph below shows the benefit to a commercial fishery given reductions in N loads. What is the marginal benefit received from increasing N reductions from 400,000 to 500,000lbs?

Quantity of N reductions (lbs)	Total Fishery Benefits
0	0
100,000	$1,000,000
200,000	$1,800,000
300,000	$2,400,000
400,000	$2,700,000
500,000	$2,900,000
600,000	$3,000,000
700,000	$3,050,000

$2,900,000

$5.8 per pound of N reduced

$2.9 per pound of N reduced

$2,00 per pound of N reduced

Suppose the graph below shows the benefit to a commercial fishery given reductions in N loads and the total cost to reduce N loads to a particular waterbody (assume an improved fishery is the only benefit of N reduction). What total N load reduction would maximize net benefits to society (TB-TC)?

Total Q of N reduction	Total Fishery Benefits	Total N Abatement Cost
0	0	0
100,000	$1,000,000	$300,000
200,000	$1,800,000	$700,000
300,000	$2,400,000	$1,250,00
400,000	$2,700,000	$2,300,000
500,000	$2,900,000	$4,300,000
600,000	$3,000,000	$8,300,000
700,000	$3,050,000	$18,300,000

a)100,000

b)200,000

c)300,000

d)400,000

e) 500,000

f) 600,000

g) 700,000

Answer 1

(1)

The correct answer is (d) $2 per pound of N reduced

Formula Marginal Benefit = Change in Total Benefit / Change in Output

Total Benefit from Producing 400,000 reductions = 2,700,000

Total Benefit from Producing 500,000 reductions = 2,900,000

Hence Change in Total Benefit = 2,900,000 - 2,700,000 = 200,000

Change in Output =500,000 - 400,000 = 100,000

Hence,marginal benefit received from increasing N reductions from 400,000 to 500,000lbs

= 200,000/100,000 = 2

Hence, the correct answer is (d) 2 per pound of N reduced

(2)

The correct answer is (c) 300,000

We can see from above that TB - TC increases till N = 300,000 and after that it starts decreasing. Hence TB - TC is maximum for N = 300,000.

Maximum net benefit = 2,400,000 - 1,250,000 = 1150000

Hence the correct answer is (c) 300,000