Reference no: EM131517951
Q1. Three mutually exclusive projects are being considered for a remote river valley: Project R, a recreational facility, has estimated benefits of $10 million and costs of $8 million; project F, a forest preserve with some recreational facilities, has estimated benefits of $13 million and costs of $10 million; project W, a wilderness area with restricted public access, has estimated benefits of $5 million and costs of $1 million. In addition, a road could be built for a cost of $4 million that would increase the benefits of project R by $8 million, increase the benefits of project F by $5 million, and reduce the benefits of project W by $1 million. Even in the absence of any of the other projects, the road has estimated benefits of $2 million.
a. Calculate the benefit-cost ratio and net benefits for each possible alternative to the status quo. Note that there are seven possible alternatives to the status quo: R, F, and W, both with and without the road, and the road alone.?b. If only one of the seven alternatives can be selected, which should be selected according to the CBA decision rule?
Q2. The city of Nashville is considering cleaning up pollution. The cost of the cleanup is estimated at $2 million. Nashville has 100,000 residents. 20% of the residents are willing to pay $10 each for the cleanup. The rest of the population is wealthier and are willing to pay $20 each. A city councillor proposes that the cleanup be financed by charging everyone in the community a tax of $20.?i. Is this project desirable from the point of view of the Pareto criterion? Explain.?ii. Is the project desirable from the point of view of the Kaldor-Hicks criterion? Explain
Q3. A county is considering using a piece of park land for one of two alternative recreation projects. Project S would require construction costs of $5 million (year 0) and generate net benefits of $1 million per year for 10 years. (Assume the benefits are realized at the ends of years 1 through 10). Project L would require construction costs of $8 million and generate net benefits of $1.2 million per year for 20 years. (Assume the benefits are realized at the ends of years 1 through 20). If these figures are in real dollars, and the real discount rate is 8 percent, which project would the county select?)
Q4. A person's demand for pizza is given by the following equation:?q = 6 - 0.5p + 0.0002I?where, q is the quantity demanded at price p when the person's income is I. Assume initially that the person's income is $40,000.?a) At what price will demand fall to zero? (This is sometimes called the choke price because it is the price that chokes off demand.)?b) If the market price for pizzas is $10, how many will be demanded??c) At a price of $10, what is the price elasticity of demand for pizzas??d) At a price of $10, what is the consumer surplus?
Q5. A highway department is considering building a temporary bridge to cut travel time during the three years it will take to build a permanent bridge. The temporary bridge can be put up in a few weeks at a cost of $750,000. At the end of three years, it would be removed and the steel would be sold for scrap. The real net cost of this would be $81,000. Based on estimated time savings and wage rates, fuel savings, and reductions in risks of accidents, department analysts predict that the benefits in real dollars would be $275,000 during the first year, $295,000 during the second year, and $315,000 during the third year. Departmental regulations require use of a real discount rate of 4 percent.
a. Calculate the present value of net benefits assuming that the benefits are realized at the end of each of the three years.?b. Calculate the present value of net benefits assuming that the benefits are realized at the beginning of each of the three years.
c. Does the temporary bridge pass the net benefits test?
(need full explanation and all numeric steps when calculating, thank you so much!)