Question 3 4 points Consider the following table of total so

Question 3 (4 points): Consider the following table of total social costs and total social benefits from a governmental policy to remove small quantities of pharmaceuticalsincluding antibiotics, hormones, mood stabilizers, and other drugs - from our drinking water supplies. What level of removal is most efficient by general economic criteria? WHY? Show your work. (Hint: MBMC) Level of removal Total Costs Total Benefits SO 80 150 200 250 280 310 340 365 385 390 S0 10 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 40 70 100 150 210 280 350 420

Solution

Following table shows the marginal benefit, marginal cost, and net benefit schedule -

With respect to general economic criteria, the efficient level of removal is that level corresponding to which marginal benefit equal marginal cost.

This is because at level where MB>MC, it is beneficial to extend the level of removal as each additional level of removal leads to net benefit.

On the other hand, at the level where MB<MC, it is losing preposition to extend the level of removal as each additional level of removal leads to net loss.

Only at the level of MB = MC that net benefit from removal is at its maximum and no tendency to either increase or decrease the level of removal is there.

The above table shows that corresponding to 50% level of removal MB equals MC.

So,

The level of removal that is most efficient is 50% level of removal.

Level of Removal	Total Costs	Total Benefits	Marginal Benefits	Marginal Cost	Net Benefits
0%	$0	$0	-	-	-
10%	10	80	$80	$10	$70
20%	22	150	70	12	128
30%	40	200	50	18	160
40%	70	250	50	30	180
50%	100	280	30	30	180
60%	150	310	30	50	160
70%	210	340	30	60	130
80%	280	365	25	70	85
90%	350	385	20	70	35
100%	420	390	5	70	-30