Question

1. Should decisions about natural resource policy be made based on cost benefit analysis? b.The Department of Natural Resources is planning a program for protecting a wilderness area and has evaluated three options (labelled A, B, and C below) using cost-benefit analysis techniques. Some of the results are presented in the following table.

2. 	Option
   	A	B	C
   Total benefits	$68 957	$63 757	$24 325
   Total costs	$6 272	$4 156	$3 655
   Benefit to cost ratio	11.0	15.3	6.7
   Marginal benefit (MB)	$5 192	$39 440	$24 325
   Marginal cost (MC)	$2 117	$500	$3 665
   MB to MC ratio	2.5	78.8	6.67

   The monetary values in the table above are in millions of 2000 Canadian dollars, based on a 20 year life and discounted to present value using a discount rate of 3%. Option A is the strictest standard and Option C is the least strict. Option B is intermediate. The marginal costs and benefit figures refer to incremental costs/benefits involved in moving from no protection to Option C, from Option C to Option B and from Option B to Option A respectively. The department of Natural Resources has selected Option B. Is Option B the economically efficient choice? Explain your answer in detail. Under what circumstances would you recommend Option C ?

Answer 1