The following data are for a series of increasingly extensive ?ood-control projects. $$\begin{array} { | l | c | c | }
\hline & \text { Total Cost per Year } & \text { Total Benefit per Year } \
\hline \text { Plan } A = \text { Levees } & \$ 10,000 & \$ 16,000 \
\hline \text { Plan } B = \text { Small Reservoir } & 24,000 & 36,000 \
\hline \text { Plan } C = \text { Medium Reservoir } & 44,000 & 52,000 \
\hline \text { Plan } D = \text { Large Reservoir } & 72,000 & 64,000 \
\hline
\end{array}$$ Plan C entails
A) marginal bene?ts in excess of marginal costs.
B) fewer spillovers than either Plan A or Plan B.
C) an overallocation of resources to ?ood control.
D) an underallocation of resources to ?ood control.

Question

The following data are for a series of increasingly extensive ?ood-control projects. $$\begin{array} { | l | c | c | } 
\hline & \text { Total Cost per Year } & \text { Total Benefit per Year } \
\hline \text { Plan } A = \text { Levees } & \$ 10,000 & \$ 16,000 \
\hline \text { Plan } B = \text { Small Reservoir } & 24,000 & 36,000 \
\hline \text { Plan } C = \text { Medium Reservoir } & 44,000 & 52,000 \
\hline \text { Plan } D = \text { Large Reservoir } & 72,000 & 64,000 \
\hline
\end{array}$$ Plan C entails
A) marginal bene?ts in excess of marginal costs.
B) fewer spillovers than either Plan A or Plan B.
C) an overallocation of resources to ?ood control.
D) an underallocation of resources to ?ood control.

Quizplus · Accepted Answer

Plan C has a total cost of $44,000 and a total benefit of $52,000, which means it still provides a net benefit. However, moving from Plan C to Plan D, the costs increase by $28,000 ($72,000 - $44,000), but the benefits only increase by $12,000 ($64,000 - $52,000), indicating that Plan D's marginal costs exceed its marginal benefits. Therefore, Plan C does not entail marginal benefits in excess of marginal costs relative to Plan D; instead, it represents a point beyond which additional spending (Plan D) would lead to an overallocation of resources to flood control, as the additional costs outweigh the additional benefits.

The Following Data Are for a Series of Increasingly Extensive