In the city of New Quark there are two water users An apartm

In the city of New Quark, there are two water users: An apartment complex, and an apple orchard. The marginal net benefit for water usage by the apartment complex is $5,000 per 100,000 gallons, and the marginal net benefit for water usage by the orchard is $1,000 per 100,000 gallons. If 200,000 gallons of water was transferred from the orchard to the apartment complex, the total net benefit from this transfer would be:

$4,000

$12,000

$6,000

$8,000

Solution

If marginal net benefit (MB) for apartment complex for water usage is $5,000 per 100,000 gallons, and marginal net benefit (MB) for orchard is $1,000 per 100,000 gallons.

If 200,000 gallons of water was transferred from orchards to apartment complex,

The marginal net benefit of apartment complex will rise by $10,000 ($5,000*2)

And the marginal net benefit of orchard will decrease by $2,000 ($1,000*2)

In short MB from this transfer is:

MB of apartment complex = $10,000

MB of orchard = -$2,000

So total net benefit from this transfer is MB of apartment complex + MB of orchard

= $10,000 -$2,000 = $8,000.

So correct ans is $8,000.