So, the key here is that not all the oxygen that is inhaled can be used.  (oxygen is breathed out) 20% of incoming air was oxygen and 16 percent of outgoing air was oxygen.  Thus, only 4% of the incoming air gets to count as "oxygen".  This means that 4% of the total breath volume is the oxygen that can be used (the 20 mL per breath).  So, 0.04 x (breath volume) = 20 mL. 

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