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Gobbet 9 - Net Benefits Solution

# Gobbet 9 - Net Benefits Solution - Gobbet#9 Net...

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Net Benefits (These problems are adapted from Callan and Thomas: Environmental Economics and Management , 2004) Consider the supply and demand schedules from Gobbet #4: PRICE (P) Quantity Demanded by Consumers (bottles/month) Quantity Supplied by Producers (bottles/month) \$0.50 1,100 100 1.00 1,050 300 1.50 1,000 500 2.00 950 700 2.50 900 900 3.00 850 1,100 3.50 800 1,300 4.00 750 1,500 4.50 700 1,700 5.00 650 1,900 Draw the marginal net benefits curve using the information from this table, and the equations you found in earlier gobbets. Find the equation for the marginal net benefits function. SOLUTION Recall that the marginal net benefit is the difference between what consumers are willing to pay for an additional unit of a good and the actual cost of the good. The marginal net benefits curve illustrates how the marginal benefits change as the size of Q increases. The benefits associated with consuming a particular quantity of a good can be found by solving the Marginal Benefits (or inverse demand) equation at that quantity. Similarly, the costs associated with producing a particular quantity of the good can be found by solving the Marginal Costs equation at that quantity. The marginal net benefit at that quantity is found by subtracting the marginal cost from the marginal benefit. The area under the marginal net benefits curve represents the total net benefit associated with consuming and producing the good. 1

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Gobbet 9 - Net Benefits Solution - Gobbet#9 Net...

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