cost and benefit analysis

Question 1

building a bridge: what is the inverse demand function?

Answer 1

𝑑(𝑉) =𝑎−𝑏𝑉

Question 2

building a bridge:
5k crossing price of 2 pounds
- 25k crossing for price of 0

use these 2 points to build a demand function?

include a toll price of 1.25

cost of ferry operator of 1.5

Answer 2

𝑑(𝑉) = 2.5−𝑉/10000

Question 3

building a bridge: what would happen to a ferry operator if a bridge is built with no toll

Answer 3

ferry loses all demand, they cant match the price

Question 4

Building abridge:
draw a diagram representing new users, new users and ferry operator with the implementation of a bridge

what are the costs/losses of the bridge?

Answer 4

ferry cost would be horzontal

• profit that used to be ferry’s would become the old users benefit
• demand curve which is now accessible is new user benefit

TAXPAYER costs

Question 5

evaluate using cost benefit analysis building a bridge when there is currently a ferry.

Answer 5

Benefit > cost
- the bridge should be considered since it will be benefit to society

O.C.

• government have limited resources
• other projects would be better –> greater benefit to society

if there is no tolls

• this reduces the gains in terms of travel time
• emperical evidence show that long run travel time will return to intial levels as traffic grow

Question 6

what are the disadvantages building a bridge

Answer 6

no toll, means P

Question 7

is there anyway ferries could exist with a bridge in place?

Answer 7

bottleneck

- alternative for users when the bridge is heavily congested

Question 8

Public vs private: why should a private firm build a bridge

Answer 8

private firms can build it more cost efficently than public firms

government pay for bridge by allowing the firm to set a toll for amount of time
- before the government acquire control of the bridge

Question 9

Opportunity costs for large public projects imply that the government

Answer 9

should fund a project only if the net welfare gain is comparable to or higher than that of competing projects

Question 10

whats is the GP for toll and untolled trips?
what is the demand function?

assume value of travel is 60£ per hour

untolled:
100k = V
30 minutes/cost

tolled:
50k = V
15 minutes
toll of 25£

Answer 10

Gp for untolled = 30£
60*0.5

GP for tolled is 40£
60*0.25+25

𝑑(𝑉) = 50−𝑉5000

Question 11

work out the cost function?
100K = V
30£ per entry

50k = V
15£ per entry

Answer 11

cost= 3/10,000

Question 12

draw a congestion charge diagram
representing
- remaining drivers
- priced out drivers
- tax payers

cost and benefit

Answer 12

2 areas in the diagram showing remaining drivers and those who was priced out