A government is considering undertaking one or more construction projects. The estimated marginal costs and benefits of each project are given in the table. Refer to the above table and information. What is the total amount that the government should spend on construction projects?
A) $8 million
B) $14 million
C) $19 million
D) $37 million

Question

A government is considering undertaking one or more construction projects. The estimated marginal costs and benefits of each project are given in the table.  Refer to the above table and information. What is the total amount that the government should spend on construction projects?
A) $8 million 
B) $14 million 
C) $19 million 
D) $37 million

Quizplus · Accepted Answer

The government should choose projects 1, 2, and 3. The total cost of these projects is $19 million, and the total benefit is $24 million, resulting in a net benefit of $5 million. Project 4 should not be chosen because its marginal cost exceeds its marginal benefit, resulting in a net loss. Choosing only project 1 and 2 or only project 2 and 3 would also result in a net benefit, but the total benefit would be lower than if all three projects are chosen. Choosing all four projects would result in a net loss.

A Government Is Considering Undertaking One or More Construction Projects