Manufacturers in an urban environment are currently producing 25,000 widgets per annum. Their gross revenue is $300 per widget and their variable costs are $125 per widget. Air quality in the city has fallen to a level of 20 points measured on a 0 to 100 point indicator. Three proposals are being considered to improve the city’s air quality. Option 1 involves annual direct costs of $100,000 which raises the index of air quality to 32; Option 2 costs $130,000 per annum which raises the air quality index to 42; and Option 3 costs $150,000 per annum and raises the water quality index to 50. In addition, producers are required to reduce their output of widgets by:

5% under Option 1, 10% under Option 2, and 15% under Option 3. Three questions are posed:

i Which option has the lowest total opportunity cost?

ii Which option has lowest cost per unit of air quality improvement?

iii Why might neither of these represent the most efficient option?