Question

Use the following table for questions 20-21.

Quantity Miles (Q)	Marginal Benefit (MB)	Marginal Cost (MC)
1	90	120
2	85	90
3	75	50
4	50	20
5	25	15
6	20	50
7	-45	80

The above table represents the costs and benefits of adding additional bike-lane miles along a major street.

Review Questions-ECON 306

20. What is the cost of adding the second mile of bike lane?

21. What is the optimal number of bike lane miles that will maximize net benefits

Answer 1

Answer 20) The total cost after adding the second mile of bike lane is:

MC of 1st lane + MC of 2nd lane

= 120 + 90

= 210

Answer 21) Net benefit is maximized when either the difference between total benefits (sum of marginal benefits) and the total cost (sum of marginal cost) that is, |total benefit - total cost| is greatest or MB = MC. Hence, to find the optimal number of bike lane miles, we use the following table:

It is clear that the net benefit (+30) is maximized at 5 miles of bike lane. Hence, the optimal number of bike lane miles is "5".

answered by: anonymous