Question

o Marginal benefitmarginal cost dollars per person) MSC 120 The graph shows the marginal social benefit and marginal social cost of a waste disposal system in a city of 1 million people M voters are well informed about the costs and benefits of the waste disposal system, what capacity will they choose in a referendum? voters are well informed they will choose a capacity of million gallons a day >>> Answer to 1 decimal place If voters are rationally ignorant, bureaucrats Install the efficient capacity because 105 90 75 GO O A will installing more than the efficient capacity will be vetoed by politicians OB will not bureaucrats want to maximize the budgets OC will officiency and lowering the government budget deficit is the goal of bureaucrats OD will not the efficient capacity is not necessarily the most cost effective 15 0 MS8 12 Capacity (millions of gallons per day) Click to select your answers)

Answer 1

1> 6 million

The voters should choose the quantity where the marginal cost and marginal benefit are equal. So, it happens at 6 million of gallons which maximizes social welfare.

2> B

Since bureaucrats and people have different objective function where people want to maximize their net benefit whereas bureaucrats want to minimize cost within the budget constraint. So, it may lead to a non-installation of the efficient quantity.