This is for a policy analysis class.

MARGINAL ANALYSIS PROBLEMS 1. Project L and M are two projects such as roads or dams. For L, Stage LI would be the first stage; L2 the next stage, etc. No stage can begin unless preceding stages have been completed. Thus L2 must be preceded by LI. The projects show the following patterns of costs and benefits. PROJECT L PROJECT M Total Cost Total Benefit Total Cost Total Benefit $5,000 9,000 Stage 1 $5,000 8,000 10,000 16,000 Stage 2 10,000 14,000 15,000 21,000 Stage 3 15,000 21,000 20,000 24,000 Stage 4 20,000 29,000 a.) For each stage of L and M. show: marginal cost, marginal benefit, net marginal benefit; net total benefit. b.) The money can be split in $5,000 increments in any way between L and M. What should be funded if the agency has total funds of: $15,000; $20,000; $30,000; $40,000? c.) To what extent does the cost/benefit pattern of project M contradict the principle of decreasing marginal benefits