A Government Airline Safety Regulation Reduces the Probability of a Fatal

question 99

Multiple Choice

A government airline safety regulation reduces the probability of a fatal airline crash by 0.005. If the costs associated with each airplane crash are equal to $600 million and the costs of performing more frequent safety inspections equal $4 million, the regulation is:

• A) cost-effective because the marginal cost is $4 million and the marginal benefit is $600 million.
• B) not cost-effective because the marginal cost is $4 million and the marginal benefit is $1 million.
• C) cost-effective because the marginal cost is $3 million and the marginal benefit is $4 million.
• D) not cost-effective because the marginal cost is $4 million and the marginal benefit is $3 million.

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